GE DIVERSIFICATION STRATEGY JANE LI, HOJIN PARK, DOYOUNG EOM, JULIA - PowerPoint PPT Presentation

GE DIVERSIFICATION STRATEGY JANE LI, HOJIN PARK, DOYOUNG EOM, JULIA SHYU STRATEGIC MANAGEMENT NOVEMBER 7 TH , 2016

Related Linked Diversification Strategy

Jack Welch • CEO & Chairman from 1981 to 2001 • Business : focus on 3 “strategic circles” - core manufacturing, technology and financial services • Philosophy : “A company should be either No 1 or No 2 in a particular industry or else leave it completely” • Made nearly 1000 acquisitions and more than 400 divestitures • Market capitalization increased from $13 B to $500 B

MAJOR PORTFOLIO MOVES: 1981 -2001 1986: National Kidder Radio Employer Broadcasting Peabody & Co Corporation of Reinsurance Company, America Corporation 1993 1994: 1996: GE Aerospace Kidder Genie Division Peabody & Co ACQUISITIONS DISPOSITIONS

Jack Welch: Acquisitions

MEASURES OF RELATEDNESS Business Internal (Competency) External (Market) Overall Relatedness L – M - H L – M – H ● ● Great technology synergy in Great marketing and sales UNRELATED synergy in defense, consumer defense, consumer products, Radio Corporation of communications, and products, communications, and research America (RCA) - research ● Little overlap in consumer (Technology) electronics product lines IN ● RCA CEO Frederick's long employment at GE prior to Joining RCA L – M – H L – M – H House Kidder Peabody ● Cultural Difference (Financial services) UNRELATED ● More competition ● Scandal (insider trading, IN then OUT ● Less Profitable overstated profit)

Jeffrey Immelt • CEO & Chairman since September 7 th , 2001 • Transformation of GE from traditional conglomerate to Digital Industry focus • Technology, Brand, Globalization, Services • Industrial Internet/ Internet of Things (IoT): Capturing data via machine sensors • “Lowered” Market Cap to $251 Billion, but faced several crises including 9/11, Enron, Hurricane Katrina, Fukushima, and the global financial crisis Source: GE Website

MAJOR PORTFOLIO MOVES SINCE 2001 2007 2002 2011 2004 SMITH ENRON WIND CONVERTEAM, DRESSER, AMERSHAM, 2014 2015 AEROSPACE, ASSETS, WOOD GROUP WELL 2013 INVISION TECH. VETCO GRAY BETZ-DEARBORN ALSTOM GE DIGITAL SUPPORT, WELLSTREAM LUFKIN, AVIO 2015 2007 2005 2011 2016 PLASTICS CAPITAL* INSURANCE NBC APPLIANCES ACQUISITIONS DISPOSITIONS Source: GE Website

MEASURES OF RELATEDNESS Business Internal (Competency) External (Market) Overall Relatedness L – M – H L – M – H RELATED ● INVISION TECH. ● COMPLEMENTARY TO ION TRACK GE INFRASTRUCTURE SECURITY → HOMELAND ACQUISTION IN 2001 (SECURITY) ● ENHANCING EXPLOSIVE PROTECTION BUSINESS IN then OUT ● INVISION ISSUES WITH DETECTION & SECURITY TECHNOLOGY FOR AIRPORT & FOREIGN CORRUPT PRACTICES TRANSPORTATION SYSTEMS L – M – H L – M – H ALSTOM ● • (POWER & GRID) JOINT VENTURES RELATED COMPLEMENTARY ENERGY (STEAM ● SWIFT INTEGRATION: 40+ & HYDRO) SERVICES IN • LEADERS JOINED GE TEAM OFFERS OFFSHORE WIND POWER & ● CLEAR OWNERSHIP OF GRID / TRANSMISSION • SYNERGY PROJECTS FURTHER GLOBAL / GEOG. PRESENCE Source: GE Press Releases

BCG Matrix Relative market share H L Earnings: high, stable, growing Earnings: low, unstable, growing (a Cash generation: neutral few become star, others divested) Strategy: invest for growth Cash generation: negative Strategy: analyze H Real Star Question Marks market growth Earnings: high, stable Earnings: low, unstable Cash generation: high, stable Cash generation: neutral or Strategy: milk to finance stars and negative (cash trap) L question marks Strategy: divest Cash cow Dog

GE’s Portfolio: 2000 High Medical Systems Lighting Capital 10 Services Power Appliances Plastics Aircraft Engines Low High Low 1.0

Data for BCG Matrix (2000) GE’s global Competitor’s Relative Business Biggest competitor Growth rate (estimates) market share market share market share Pratt & Whitney Aircraft Engines 48% (a segment of United 28% 1.71 5% Technologies) Power Systems around 10% 50% Siemens 25% 2 (gas turbines) (introduction/growth stage) Medical Systems - MRI 47% Siemens 23% 2.04 above 10% - Computed 48% Siemens 20% 2.4 Tomography (CT) Capital Services - - - high below 10% Plastics - Bayer, Dupont, Taijin - high below 10% Lighting 21% Philips 33% 0.64 around 10% (growth stage) Appliances 22% Whirlpool 29% 0.76 below 10%

GE’s Portfolio: 2015 High Digital Renewable Health Energy care Energy Management Lighting Aviation Transportation Oil & Gas NBC (2011) Power Capital (2015) Insurance (2005) Plastics (2007) Low High Low 1.0

Data for BCG Matrix (2015) Business % of Market Growth rate revenue share (estimates) Business GE’s market Biggest competitor Competitor’s Relative market GE Aviation 21% 1.57 Around 10% share market share share GE Power 18% 1.73 Below 10% GE Aviation 15.07% Honeywell 9.59% 1.57 International Inc. GE Healthcare 15% 2.13 Above 10% GE Power 36.53% Siemens 21.1% 1.73 GE Oil & Gas 14% 0.57 Below 10% GE Healthcare 23.26% Danaher Corp 10.92% 2.13 GE Capital 9% -- -- GE Oil & Gas 4.06% Schlumberger Limited 8.75% 0.57 GE Lighting 7% 0.43 Around 10% GE Capital -- -- -- -- GE Energy 6% 3.71 Above 10% Management GE Lighting 5.27% Whirlpool 12.26% 0.43 GE Transportation 5% 0.29 Below 10% GE Energy 40.79% Eaton Corp Plc 10.98% 3.71 Management GE Renewable 5% 0.76 Above 10% Energy GE Transportation 5.92% Caterpillar Inc 20.75% 0.29 GE Digital GE Renewable -- -- 9.5% Above 10% Goldwind 12.5% 0.76 Energy Total 100% -- -- Source: http://csimarket.com/stocks/competitionSEG2.php?code=GE

Major portfolio shifts 2001: 40% industrial, 40% capital, 20% others → great diversification 2014: 60% industrial, 40% capital 2018: After completion of GE Capital’s exit → 90% industrial

Conclusion “Diversification is essential for consistent financial performance in volatile times. ”--Jeffrey Immelt

References Ashkenas, Ron. Simply Effective: How to Cut Through Complexity in Your Organization and Get Things Done . Harvard Business Press, 2013. Bensoussan, Babette E. & Fleishe, Craig S. Analysis Without Paralysis: 12 Tools to Make Better Strategic Decisions . FT Press, 2012. CSI Market, Inc. http://csimarket.com/stocks/competitionSEG2.php?code=GE Fripp, Geoff. “BCG matrix formulas and calculations”. http://www.thebcgmatrix.com/analysis/bcg-matrix-formulas-and-calculations/ “GE 2000 Annual Report”. http://www.ge.com/annual00/download/ “GE 2015 Annual Report”. http://www.ge.com/ar2015/letter/ Immelt, J. R. "“The Pivot” - GE.com." December 16, 2014. https://www.ge.com/sites/default/files/ge_webcast_presentation_12162014_0.pdf. Kumar, Rajesh. Strategic Financial Management Casebook . Academic Press, 2016. NYU Stern Business School. “Jack Welch and General Electric”. 2002.