Organizational Strategy on General Electric

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Submitted in part fulfilment of the requirements for the degree of MSc Management
(International Logistics)
STRM002
Organizational Strategy
On
A Case Study Analysis on General Electric
By
Subhi Pradhan
Northampton Business School, University of Northampton
Supervisors: Mr. Ross Thompson
Mr. Adrian Prynce
Submission Date: 7th February, 2013
Word Count: 3447

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Table of Contents
1. Chapter 1: Internal Analysis ...................................................................4
1.1 Capability A: Caldrons of Managerial Brilliance (Leadership) ...................4
1.2 Capability B: Human Capital (Human Resource Development)................4
1.3 Capability C: Organizational Structure (Firm Infrastructure) ...................5
1.4 Capability D: Innovation Platform (Technology) .....................................5
1.5 Capability E: Diversified Portfolio (Marketing and Brand Portfolio)...........6
1.6 Capability F: Customer Care (Service)...................................................6
2. Chapter 2: Real options Approach: GE Case Study ...............................9
2.1 Executive Summary .............................................................................9
2.2 Real Options .....................................................................................10
3. Chapter 3: Strategic Options ................................................................13
3.1 SWOT Analysis of GE..........................................................................14
3.2 TOWS Matrix of GE.............................................................................15
3.3 Strategic Options ...............................................................................16
3.3.1 Strategic Option 1: Options for Market Development .....................16
3.3.2 Strategic Option 2: Options for Product Development ...................17
4. Chapter 4: Conclusion ......................................................................... 19
5. References ........................................................................................... 20
6. Appendices .......................................................................................... 23

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List of Tables
Exhibit 1: Core Competency Map Model: Roots of Competitiveness..................8
Exhibit 2: SWOT Analysis of GE....................................................................14
Exhibit 3: TOWS Matrix of GE ......................................................................15
List of Figures
Figure 1: Options Grid .................................................................................10
Figure 2: Ansoff Matrix ................................................................................16
Chapter 1: Internal Analysis

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According to Lehmberg et. al., (2009) GE’s capability is believed to be a source of sustained
competitive advantage. So what capabilities are exploited in building this core competency of
GE? Let us use the Value Chain Model devised by Porter (1985) to analyze and identify those
capabilities.
Capability A: Caldrons of Managerial Brilliance (Leadership)
Prahalad and Hamel (1990) state that core competencies provide new market accessibility
and value-added service to the company, which are inimitable. It can be noted that Immelt’s
motivational and democratic leadership style implemented had successfully reshaped the
leadership culture into an innovative culture, hence known as “Imagination at Work” within
GE, which differentiates from that of other companies (Grant, 2010).
His Emotional Intelligence allows him to communicate and relate to every employee in the
organization by providing opportunities, high level of motivation and high standard of quality
management practices that brings out the best in them (Grant, 2010). Much priority has been
given to investors and third parties in building customer relationships and loyalty, which are
considered to be a valuable capability. Immelt’s driven approach to Environmental
Opportunity seeks for sustainability demands of key stakeholders to maintain its competitive
position in the market. This pursues operational efficiency and cost competiveness through its
environmental initiatives (Magee, 2009).
Capability B: Human Capital (Human Resource Development)
The unwavering commitment of Immelt’s leadership to high-skilled training and educating
employees, known as GE Global Learning, has fostered development in business knowledge,
functional skills, leadership program, workforce, and growth traits such as decisive thinking,
external focus, inclusiveness and imagination at work (Magee, 2009). This operation of GE’s
talent management infrastructure enables structural change that disperses ‘GE branded’
training program in various centres such as in New York, Abu Dhabi, Munich, Shanghai and
Tokyo. Adopting employee training within GE could be done through the right culture, the
right organizational structure and the right communication and information technology
system. Surprisingly, over 1 billion dollars annually was spent on training and even during
recession from 2007-2009 (Bucifal, 2009).
GE program leverages community colleges to get employees trained and certified skills in
advanced manufacturing within six weeks and more emphasis is made on graduating

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engineers. Immelt’s hiring of new blood has made an attempt to change the old process of
promoting within GE, which has encouraged more pressure to produce Imagination
Breakthroughs (Daft et. al., 2010). This expansion of motivation and growth within GE
through innovation is cheaper and more effective than buying from outside, which has
developed the competency to improve their business model.
Capability C: Organizational Structure (Firm Infrastructure)
Prahalad and Hamel (1990) suggest that corporations should structure in accordance with its
core competencies rather than a portfolio of business units. The rigorous decentralization of
the organizational structure within GE from a highly centralized bureaucracy to breaking up
into a cluster of units as independent entities has facilitated cross-business integration. This
applied strategy saw GE’s market value ameliorate from 12 billion dollars to 37 billion
dollars over 25 years, underpinning as yet another core competency (Knoll, 2008; Bucifal,
2009).
Progressively, Immelt further adjusted structure from the result-oriented to a more open and
less hard edged architecture, which reorganized and delayer management divisions from
twelve to six smaller broad-based sectors (Bucifal, 2009). This strategy to facilitate in
“getting closer to the businesses” structure process (Knoll, 2008) compliments GE’s core
competency in reporting directly to Immelt for efficiency, easy communication, levels unit
heads and the CEO, increasing control span and reducing the number of reporting offer
opportunities for delegation, empowerment and motivation, encourage motivation and reduce
the bureaucracy .
Capability D: Innovation Platform (Technology)
Since GE culture has changed from being a six sigma, bean counter and a bottom-line driven
organization to being an innovative organization (Hitt et. al., 2009). Immelt’s capability to
boldly reshape the 125 year old organization and its future has used innovative competence to
tie together its disparate offerings (Gonzalez, 2010). In response to the growing demands, the
technological innovations, for instance process mapping (reengineering), workouts
(employee-manager retreats) and Ecomagination and Imagination Breakthroughs initiatives
were launched (Bucifal, 2009). Arguably, it was for an open challenge commitment to
innovatively find solutions to solve today’s environmental issues for market expansion
opportunities, product commercialization and benefit customers and the society at large. GE

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enormously invested (Approximately $100 million) in technology that sets apart from its
competitors, with substantially lower costs, increase access, improve quality and delivers
customer value that considerably solves big global challenges (Bucifal, 2009).
Capability E: Diversified Portfolio (Marketing and Brand Portfolio)
Under the leadership of Welch and Immelt, it has been highly demonstrated that the
competency have effectively created and leveraged its diversified portfolio to utilize strategic
synergies that leads to the growth of the company in emerging economies (Bucifal, 2009). It
has been said that no company has gone global more aggressively than GE due to its business
units system, where division managers acted like small business owners, notably to be
familiar with their customer’s need and wants (Kenny, 2012). Prahalad and Hamel (1990)
refer competencies as the “glue” that links all the diversified businesses. This diversification
of GE allows shared core competencies that comprises of shared knowledge, patents,
resources and skilled labour that are common in different GE businesses. GE establishes
healthy relationships in both India and China and the potential access to diversify its markets
in those countries have, consequently improved its brand reputation, exploit labour resources,
increase efficiency and profitability, while customer satisfaction and coherency ensue within
the organization (Grant, 2010). Therefore, GE has the competency to provide its businesses a
solid financial and strategic resource base and reveal future growth opportunities
Capability F: Customer Care (Service)
Grant (2010) affirms the manifestation in the revitalisation of marketing function in GE,
which notably has been created through GE’s Commercial Council and Customer-Oriented
Programs deployment. The customer focus initiatives started from Welch’s era in 1980s,
Work-Out, which then focused on Productivity, made boundary-less structure for Process
Improvement, further adopted Change Acceleration Process (CAP) and thereby created the
learning environment that led to the road to customer impact, Six Sigma, which has become
the DNA of GE. An important outcome of the development of its core businesses that is
deeply related to environment and energy-related projects had been in response to the
customer demands. For instance, the new strategies were dubbed as “Ecomagination” and
GE’s “Imagination at Work” (Toole, 2007). The continual investment in technology has
enabled GE to develop more products and enter new markets, which was executed through
sequences of divestments and acquisitions in various sectors. This strategic focus creates

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differentiation advantage by producing innovative goods and services and enhances customer
focus.
An adept understanding of the capabilities in GE revealed the core competencies that
combine the whole diversified organization cohesively. Hence, Prahalad and Hamel’s (1990)
Core Competence Map Model has been exploited to demonstrate the roots of competitiveness
and the linkage of the core products, business areas and core components to provide its core
competence of GE (Exhibit 1).

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Business 1 Business 2 Business 3 Business 4 Business 5 Business 6 Business 7 Business 8 Business 9
Café,
Monogram
Refrigerators
Washers
Dryers
Dishwashers
Microwaves
Ranges
Wall Ovens
Cooktops
Water Heaters
Small
Appliances
Appliance
Filters &
Accessories
Aviation
Business &
General
Aviation
Commercial
Engines
(GECAS)
Marine &
Military Engines
Aviation
Systems
Commercial
Lending &
Leasing
Energy Financial
Services
GE Capital
Aviation Services
Real Estate
Financing
Consumer
Financing
Retail Financing
Energy Mgmt
Oil and Gas
Power and
Water
GE Healthcare
Products
Services
Specialties
Education
News
Life Sciences
Low Dose
General Purpose
Lighting
Track & Recessed
Vanity & Pendants
Decorative
Linear Fluorescent
AutomotiveLights
Specialty
LED Lights
Halogen
Linear Fluorescent
Compact
Fluorescent
Lighting Ballasts &
Drivers
High Intensity
Discharge Lamps
Lighting Controls
Mining Power
Distribution
Mining Water
Treatment
Mining
Productivity
Solutions
Mining Power
Conversion
Mining Proficy
Maxxmine
Mining
Equipment
Mining
Infrastructure
Aviation Software
Energy
Management
Software
Healthcare
Software
Intelligent
Platforms Software
Oil & Gas Software
Power & Water
Software
Transportation
Software
All Services
Locomotives
Railway Signalling
& Communication
Railway Traffic
Control & Dispatch
Software
Energy Storage
Diesel Marine
Power
Diesel Stationary
Power
Drilling Motors
Appliances Aviation Capital Energy Healthcare Lighting Mining Software Transportation
Customer Service (Core Service 1)
Hybrid/Environmental Friendly Technologies
(Core Service 2)
Infrastructure (Core Service 3)
Research and Development (Core Service 4)
Demography and Emerging Markets (Core
Service 5)
Leadership
(Competence 1)
Innovation
(Competence 2)
Diversification
(Competence 3)
Product Development
(Competence 4)
Exhibit 1: Core Competency Map Model: Roots of Competitiveness

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Chapter 2: Real Options Approach: GE Case Study
2.1 Executive Summary

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2.2. Real Options
Zarkos et. al., (2007) suggest that the strategic planning formulation within ROA framework
encourages managers to consider the effects of uncertainty on the performance of the firm and
provide them with methods to cope with the possible uncertainty. It notes that options create a
theoretically attractive method that presents flexibility inherited in many investment
proposals, however Ford et. al., (2002) proposes practical difficulties that result in most
careful users to make erroneous conclusions. RO make sense when the company operates
under external environmental uncertainty and has the ability to respond with its flexibility
(Walters and Giles, 2000). According to the Complexity Theory (CT) it could make it
difficult to find errors in the analysis, hence result in making overly ambitious assumptions by
optimistic project planners (Babajide, 2007)..
In Luehrman’s (1998) portfolio framework, he suggests that the use of an “option space” grid
to actively manage the portfolios of RO and trading off a measure for immediate profitability
is considered effective (Figure 1). The argument presented by Zhao (2008) focuses on the
unrelated diversification to have more positive impact than related diversification as adding a
segment to the business may increase the growth options to a new era.
Being one of the strengths of GE, unrelated diversification is considered to be series of
connected RO, where the investment opportunities depends on those acquired in prior
investment decisions (Andres et. al., 2012), which may serve to enrich firm’s growth options
portfolio. GE’s expandability of operations in an unrelated segment has given rise to a call
option based on its existing resources due to the transferability of operational capabilities to
different industries. Under conditions and high uncertain industrial level of market
competitiveness in 2009, the value of option increased in GE with an increase in expansion
costs, hence locating in Region 3 in Option Space. This encouraged GE to exercise the option
to make early investment in new businesses with higher volatility (Zhao, 2008). The author
assumes that GE have been diversifying in unrelated segments because their investment
opportunities are available, probably as a result of prior investments, which promoted
exploration and learning in those particular areas.
However, there are some strengths that are used for exploiting more than one opportunity,
whereas the other strengths are used only in specific opportunities (Zarkos et. al., 2007). In
this case the manager can either maintain the option to continue investing in the opportunity
specific strengths or not. Supposedly, GE’s top management is reviewing a proposal for

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greener environment in the UK market to develop and introduce its green technology system
and eco-friendly infrastructure. The proposal calls for changing from jet engines to power
generation and financial services to plastics. Moreover, the business benefits of the project
remain uncertain, hence exercising the option to invest in the new system in stages. GE could
conduct a pilot program of its launch in a particular geographic market, and if the result is
profitable or unprofitable due to market uncertainty, the company has the right to add value to
continue, abandon or delay the investment in future.
Zhang (2006) informs that the characteristics of Research and Development (R&D) projects
in firms contain sequences of contingent RO decisions that may have an impact in future.
These RO allows GE to develop capabilities to make innovative technologies if they need to
or when want to, in response to tightened environmental policies, mandatory sales of
alternative innovative products and services and demand for breakthrough innovations.
Surprisingly, in the presence of high uncertainty complex system, it encouraged GE to
exercise option to expand (Locating in Region 1 in Option Space) by investing more in R&D
spending, especially when it is “deep-in-the-money” and if the yield from the exercise is large
(Stein and Stone, 2012).
One potential merit that Kogut and Kulatilaka (2001) mention is that RO analytic approach
may change the type of investment proposals that are reviewed. This means that the option
perspective inverts the thinking about uncertainty absorption in the organizational literature.
For example, more option like proposals is considered, where managers look for options for
the right investment at a lower exercise price.
Let’s assume that under market decline, GE’s competitor anticipates its entry to unveil a new
technology designed especially to boost output from its wind turbines that hooks wind farms
up to the grid easily, which creates competitor risks uncertainty for GE. Wyant (2009)
suggests if the managers are uncertain about the long term outcomes of the project, they can
valuably plan in advance about the option to expand earlier at some point. Therefore, GE
could create the exercise to expand their options earlier, which is to create new flexibilities to
act quickly by making a strategic investment commitment, primarily to avoid losing
investment opportunities to its competitors. Such investment options may unlock new
embedded options in the project in future, where GE can expand more, abandon or switch to
alternative use. However, this is consistent with the idea of CT, where the initial momentum
of Bak’s (1996) work was generated from the concept of self organized criticality that follows

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predictable patterns. In this case, these patterns are exhibited by Competitors and Technology
Risks.
When firms have the opportunity to make an irreversible investment under future uncertainty,
Weeds (2000) proposes an option value to delay. In the light of the real options approach, it
improves the traditional NPV (Net Profit Value) based investment appraisal methods by
enabling the firm to choose the options to delay that gives importance of flexibility to be
measured. Thus, it maintains and improves the upside potential and limits the downside loss
(Bucifal, 2009). Let’s assume that due to global crisis and fuel prices fluctuations complex
system, GE Energy Sector have undergone supply shortages and decline in profitability.
Hence, GE Energy sector could exercise the option to abandon as the market conditions
decline leading to unprofitability (Region 5 in Option Space). Since it is a capital intensive
investment, the CEO can give up the project and realize the salvage value, which is
exercisable at any time within next five years. GE Energy can then completely abandon the
project or continue developing (Region 6 in Option Space), but according to the author GE
Energy should continue with the development.

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Chapter 3: Strategic Options
This section outlines and discusses two strategic options available to GE over the next five years
(2009+). Let us first look at the Generation of SO.
3.1. SWOT Analysis
To get a better understanding of the SO and its identification, the author has provided a
SWOT analysis (Exhibit 2)
Strengths

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Weaknesses
Opportunities
Threats
Exhibit 2: SWOT Analysis of General Electric

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3.2. TOWS Matrix
Johnson et. al., (2011) proposed TOWS Matrix to generate SO by using the SWOT matrix.
Exhibit 3: TOWS Matrix of GE

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3.3. Strategic Options
The Ansoff matrix devised by Igor Ansoff (1957) has been used to identify GE’s strategic
development directions and the structuring of strategic options decision (Johnson’s et. al.,
2011; OUP, 2010) (Figure 2).
3.3.1 Options for Market Development: “Acquiring presence in India’s growing natural
resources”
The most obvious type of option that is related to products and services is to offer in which
new markets. According to the Ansoff’s model, the growing Indian Natural Resources is the
New Market, with the products and services that include Frame 6FA Gas Turbines and
Associated Generators are the Existing Products. The strategy that Ansoff suggests for such
penetration is Market Development. GE served as the energy sector that developed and
deployed technology to efficiently make use of natural resources (GENews, 2011). Although
it has not been implied in other growing economies of Asia, investment planning for the
development of energy infrastructure has been conducted. As the largest gas turbine
technology supplier for Sravanthi Energy in India, GE established its presence in the Indian
market successfully (BusinessWire, 2011). Applying this option in Porter’s Generic Strategy
Model, GE is entering into a new market with an existing product and thus can open
additional geographical markets through regional, national or international expansion and can
create a niche market through the segmentation of customers.
Taking Rumelt’s (1991) key criteria against the strategic options of GE, it can be noted that
the presence of gas and the need for greater power generator capacity for major load centres is
growing. This enhances the opportunity for GE to invest its highly efficient 6FA gas turbines
in Indian mid-sized power producers due to its output size. This way it creates competitive
advantage to deliver innovative and advanced performance in combined power plants and in
industrial and cogeneration applications. As a first time mover into a new market, GE gains an
advantage over its rivals for its innovative gas turbines, however if the competition releases
products that compensate for the shortcomings of GE’s first release, it in effect could hamper
the global brand that it has GE in India.
The SWOT analysis (Exhibit 2) reveals that one of the main strengths of GE is the experience
in Mergers and Acquisitions such as with Comcast Corporation in 2011, Avio Aviation in
2012 and so on. Hence, GE could lead into a Merger with Sravanthi Energy Corporation in
India as it enables sharing the local knowledge; greater market share and greater investment in

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R&D. This could lead to a better quality of products and services for consumers but increases
the risk of cultural conflict, which meets Rumelt’s test of Feasibility. Since the generator
users in India have been forecasted to increase in future, Sravanthi Energy’s development of
power projects that totals up to more than 3,000 megawatts of thermal, gas and wind energy
sources would lead to the reduction of risk and increasing potential of higher returns
(BusinessWire, 2011). Hence, there is a higher chance of acceptability from the shareholders
as it favours towards the long-term investments (GE Annual Report, 2009).
3.3.2 Product Development: “Expanding its Positive Outlook of Healthcare market in the
USA”
This option comprises of developing new products for the exiting market, which can meet a
close proximity of customers needs and outperform the products of its competitors. According
to the Ansoff’s Model, FlashPad, a new wireless detector that operates with ultra wideband
connectivity is the New Product in an existing market. Thus, the strategy that Ansoff suggests
is Product Development. The release of this product was in 2012 and has shown higher and
stable income since the entire healthcare environment in today’s era has been aiming to
streamline the x-ray department workflow whilst maintaining patient satisfaction (Harvey,
2011). If marketed effectively, it may be a substitute for the regular x-ray equipment and has
the potential to extract customers and increase profitability. Applying this option in Porter’s
Generic Strategy Model, it can be noticed that GE was the first to release a new high-quality
digital wireless detector in the US market, which thus could be by benefitted by its
differentiated offerings.
According to Rumelt’s (1991) criteria, the competitor analysis shows that its rivals such as
Siemens Healthcare, Hitachi Medical System, Philips Healthcare and Toshiba Medical
Systems offer similar products, however by choosing such strategy to build a digital
radiography could be competitive for GE. The US healthcare sector, according to the survey,
has increased its total healthcare expenditure from $738 billion in 2005 to $1,097.9 billion in
2011 and is likely to increase by 2016 (Euromonitor, 2012). Hence, this could create a
different and positive outlook of X-Ray market in the geographical regions of the USA where
GE has a presence. This tests the criteria of Consonance.
As FlashPad is the first mover in the existing market, it creates a competitive advantage to do
more with the equipment, which allows imaging patients faster than Computed Radiography
and shows reliable data with Ultra-Wideband connectivity. GE’s value activities (Chapter 1)

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show that GE’s robust R&D capabilities have enabled the company in developing more
efficient, innovative and differentiating products (GE, 2013). Thus, as per the Ansoff’s model,
it suggests that GE Healthcare should invest more for the product development. According to
Grant (2010), the increase in sales of GE’s innovative healthcare products may increase
customer’s choice in healthcare goods. The acceptability of this strategy is that the initial
investment for this kind of option could be high, but profitable in a long run, which could
reduce the associated financial risks overall.

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Chapter 4: Conclusion
In conclusion, this report has provided a comprehensive analysis of General Electric’s (GE)
core competencies detailing on the effectiveness in supporting the GE’s success up to 2009.
Models such as a Core Competency Map (Prahalad and Hamel, 1990) and Value Chain
Analysis (Porter, 1985) have been fused to generate GE’s core resources and capabilities to
reveal the core competencies. In conclusion, the applied models and concepts have been
applied to the corporate issues, whilst making judgements and conclusions (Chapter 1).
This preliminary report to the CEO Jeff Immelt summarizes that the applicability of ROA
seems limited as many decisions are affected by more complex criteria. Many different
potential aspects of investment and options were looked at. After all, the company has the
right to invest, but not the obligation that can capture benefits from the exploitation of this
opportunity. However, Trigeorgis (1993) points out that not all opportunities can be options
and not all options show significant economic value (Chapter 2).
Moreover, GE’s two SO were outlined based on the Ansoff’s Matrix, SWOT Analysis and
TOWS Matrix frameworks (Market Development and Product Development), which are
available to GE over the next five years (2009+) and the results of the GE strategies evaluates
the following questions “Does appropriateness reflect in the business objectives? Are the
business policies and strategic plans appropriate? Do the business objectives confirm or
refute critical assumptions of the strategy? (Chapter 3)

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6. Appendices
Figure 1: Option Space Grid (Luehrman, 1998)
Figure 2: Ansoff Matrix