Strategic Recommendation

Strategic Recommendations

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The dream of every company is to maintain its high performance which translates to high profitability hence the success of the organization. A lot of challenges however come by which if not handled amicably will affect the productivity of the organization. This is the same case with General Electric (GE). It is an American Corporation which is among the most-diversified and largest corporations in the world. The company deals with aircraft engines, electrical and electronic equipment and financial services, with its headquarters in Boston. The company was among the admired corporations globally. This has however changed as its outlook has been reduced.

General electric has been considered as one exemplary organization for many years. This is because it set in place some strategies to ensure its success. The company doesn’t operate in a single product mentality and does not focus on inferiority. Even though the main business is technical and engineering products, they get into the businesses whereby they see the potential of success (Henderson & Evans, 2000). They have the goal of making profit regardless of the industry they dive in. Secondly, the company has focused on manufacture of products needed by people. People are in need of light bulbs, medical devices, power plants and aircraft engines.

They as well focus on quality. In this case, they seem to have higher prices for their products but again they do not compromise on quality and have unbeatable customer support. They have created a system whereby they ensure customer calls and emails are responded to quickly to ensure customer satisfaction.

In 2016, the company rolled out its performance management strategy which replaced the Employee Management System which was put in place in 1976. This change came forth as a result of a program that was launched way back in 2013 known as FastWorks. This program led to the introduction of processes and skills to transform GE into a more agile, lean and an organization which is more customer centered. Under the instructions of Jeff Immelt, the CEO, the company began shifting from the annual performance reviews to a system which was able to accommodate innovative and lean methodology of FastWorks. According to Henderson & Evans, (2000), the organization thus came up with a simple phone app which was designed purposely to facilitate meaningful conversations and frequent communication between the employees and the managers.

The app, known as PG@GE, exchanges text and voice input, handwritten notes and attached documents between the managers, employees and teams all through the company. The goal of the organization was to shift the focus of their employees into shared accountability and continuous dialogue. The app gives the facilitation of constant feedback-exchange all year round. The participants are able to get opinions from any person within the network which include other teams’ members and the upper management.

In order to keep up with customer-centered growth, General Electric’s IT team came up with the app to enable managers to hold regular ‘touchpoints’ with their employees for them so set goals, create and update their priorities based on the needs of the customers. At its core, the application is meant to create a platform for definition of employee goals as well as enabling improvement for all the users.

There has been a significant difference between the leadership of Welch and Immelt. Jack Welch led the organization from 1981 to 2001 while Immelt took over in 2001. During the Reign of Jack Welch, he created a very huge conglomerate with a portfolio which was well-diversified (O’Boyle, 2011). This seemed to be quite heavily invested in particular areas hence the decision of Jeffery Immelt to shed off some assets which included GE’s Capital spinoff, selling the appliance division to Haier, selling of the NBC to Comcast. There were as well other investments, but these were notably the substantial transactions. This led to the beginning of transformation of the great organization into a digital player. During Immelt’s tenure, there was the creation of a new software known as Predix which was meant to ensure intersection of digital expertise and domain expertise (Charan, 2016). This software was expected to optimize the whole system of the industrial equipment which included, jets, manufacturing engines, trains among others. It creates efficiency through data collection from several sources like weather forecasts, cameras and web data. This was expected to lead to another efficiency for companies globally (Woods, 2016). For Jeffery Immelt, Predix would offer endless possibilities if found successful. He saw a great potential with the corporate strategy shift towards digitization. Under this tenure, GE directed its focus back to the industrial roots it possessed but now with a modern approach. There is a trend directed to cloud-based services as a result of a global economy and GE had forecasted a need for this in the global market. They thus have a target of taking advantage of the opportunity.

Historically, the tenure of Jack Welch had better statistics and basic financial ratios. The portfolio that was housed under GE during this period was involved heavily in the financial services especially in the 90’s which lasted up to the financial crisis. Jeffery Immelt is now trying to ensure the company adapts to the new external environment. This environment is expected to the rely heavily on the digital services. During Jack Welch’s tenure, he began running the company starting with $13 billion market cap and closed with $280 billion market cap. This remarkable growth in the two decades of his leadership led him to winning Fortune’s Magazine, Manager of the century award. The major financial statistics were the 5400% return on the stock and was the largest capitalization value ever experienced by any other company (Samaha, 2014). During his tenure as well, GE was outperforming the S&P 500. His reign was majorly during a period that the world experienced economic boom and thus he was able to make approval of over 1000 acquisitions. This is the major reason for the accelerated growth in market cap in the company. 1995 saw the adoption of many policy standards. These standards were referred to as Six Sigma. At that time, Motorola was the only company using these standards and Welch noted the cost that was eliminated from Motorola’s bottom line. The premise that was behind the concept had the mandate of keeping the variation of the product within the three sigma of mean. Most of the employees had to undergo a 13-day, 100hour program training which covered the following points: identification and definition of the process, process output measurement, analysis of criticality of process output, modification of inputs to improve the process, controlling the entire process by taking control of the appropriate input. By ensuring the implementation of these control standards, GE was able to save about $5 million in 5 years (Nayab, 2011). It can thus be fair to say that during Jack Welch era, the company had a competitive advantage. If we can take a look at the market cap, growth as well as other measures of valuation, it is with no doubt that GE was headed towards a better future.

The question that we ask ourselves is why the stock price was at half when Welch finished his leadership and handed over the leadership to Immelt. If we think logically, we can be able to tell that if Jack Welch’s decision model could be followed, GE was headed towards a better future. Rational thinking would however account for underlying factors and look at the context. The financial statistics that were owned by Immelt cannot be compared to those produced by GE under Welch. Since the takeover by Immelt, only 9.4% stock return was made (Samaha, 2014). It is now ranked at 11th worldwide on market capitalization. The earnings have as well lagged the S&P 500 over the past few years after the financial crisis (Motley, 2012). Immelt took over the company leadership before the 9/11 disaster which led to recession. The financial crisis that occurred in 2008 affected the company badly as a larger portion of the company’s revenue was still tied up in the financial services. This crisis was preceded by a recession. These two major events led to the lack-luster numbers during his tenure.

There is thus the need for one to take a look at the merits of Jeffrey Immelt independently without making a comparison with those of Jack Welch. When this is done, we can come to the realization that even through the recession, Immelt had a fairly steady appreciation in stock in 2009. Even after the shading of the assets, the company’s market cap was at $261 million. This is about $19million less after the stepping down of Welch (Samaha, 2014). It is thus clear that making judgments on the results isn’t very important but the need to look at when these results were achieved.

The nature of GE’s corporate portfolio produced superior result depending on how they are viewed. They both had different styles of management. Welch was a strong willed leader and dominated the business decisions while on the other hand, Immelt had the belief of making collaborations with the employees and was a welcoming person. One can argue that GE flourished under Welch’s tenure as compared to Immelt’s (Samaha, 2014). There is however the need to make a consideration of the outside factors such as the 9/11 terrorist attack and the 2008 financial crisis. Jeff Immelt’s tenure was faced with quite a number of events which affected the market greatly and these challenges were not faced by Jack Welch. These events had a major role to play in the financial state and performance of GE during Immelt’s tenure. The era of Jack Welch can be considered the most successful when the financial performance is measured. Apart from the success in financial performance, he has as well made other very successful business decisions as a CEO.

Despite the success of the portfolio mix, the company had to restructure its portfolio for one major reason. The business environment is evolving at a very fast rate. The world economy is changing and it is a major reason why the economic growth has been a hard task to accomplish. Economies thus need to ensure restructuring within the umbrella and the companies that are within these economies need to restructure as well (Salwan & Sharma, 2018). General Electric was thus not left behind in the restructuring and so far, it can be seen as being successful. General Electric got into serious financial business in the days where there was credit inflation. Every company during this time seemed to be doing well including GE. For quite a long period of time, the company was making more than 50% of profits which were from their financial subsidiaries. The move to the finance business was a parent idea of the former CEO Jack Welch before the takeover by Jeff Immelt which lasted up to some years back. Immelt decided to come up with some independent moves several years after his takeover from his predecessor. The company is now beginning to see some minor improvements from the decisions made by Immelt as he expected GE to earn 90% of its profits. This was to come from selling the equipment for railroads, airplanes, electricity generation and oil extraction. In 2015’s second quarter, the company’s revenue was increased by 8% in that quarter. This was helped by about 37% increase in the aviation sector and 29% increase in the sector of power turbines retail. Not every business however made improvements in this quarter. The oil sector for instance failed to make improvements as the oil prices remained fairly low and they were not expected to be any better soon.

It is important to note that these changes in the portfolio made General Electric to make a positive move in the right direction. There is more focus in the business which is very important in the new economic era that the US and the world in general is moving in to. This restructuring which is trying to replace the ‘old’ business model is expected to make the business withstand the changes that are awaiting it in the market. Despite the positivity of the portfolio mix, this change was inevitable to enable them fit into the economic changes that are currently occurring.

General Electric’s performance is no longer superior. We therefore take a look at what happened to a company that once defined the American corporate culture and industry. In 2018, the financial crisis hit the company very hard. The company recorded a 42% decrease in stock during that year. After the departure, of Welch, it was clear that the company was overstretching. During the Great Recession, GE’s Capital Financial segment almost toppled as it failed to have a competitive advantage over its competitors. Up to now, this segment is still the main subject of concern as its balance sheet is unwieldy and opaque. In 2008, Warren Buffet invested $3 billion with a purpose of stabilizing the company’s operations. According to Stern, (2016), the troubles of the company however did to come to the end with the financial crisis as its purchase of the French transportation company, Alstom’s power business which costed $9.5 billion was considered a major flop.

Under the leadership of Jeffery Immelt, GE was forced to bring down its capital and go back to manufacturing. They also divested several billions of dollars in real estate and loans and jettisoned GE Plastics, NBCUniversal, GE Appliances and GE Water. General Electric also slashed its dividends to $0.82 from $1.24 in 2009. These dividends decreased further in 2010. All these occurrences affected the performance of general electric and reduced its superiority.

The financial crisis led to the reduction of General Electric’s stock by 2004. The company has a market cap of almost $300 billion but slumped to $50 billion when the downturn occurred. This was as a result of the quality of the assets that were held by GE’s Capital especially during recession. By mid-2015, the company’s market cap recovered to about $250 but went down again to $90 billion by 2017.

Between 2016-2018 however, there are several occurrences that led to the collapse of GE’s financial performance. During this period, the company acquired Alstom’s energy which enabled the power segment to surge to 30% and the strong performance in the Aviation sector led to the improvement to 20%. The contribution to the lighting business however declined to about 4% due to the energy efficiency regulations and the shifts from the traditional lighting products to the more cost-saving and energy efficient options. This led to a negative impact on the company’s products. Between 2017-2018, the company acquired Baker Hughes thus contributing to the increase in oil & gas to 22%. At the same time, the operational issues at the power sector led to a decrease to 26%. These occurrences led to decline in financial performance during this period.

Despite the decrease in GE’s performance, there are several things that can be done to ensure it gets back to its feet. The company first needs to deal with its accounting. Since the departure of Jack Welch in 2001, the company has failed to maintain a stream of the quarterly earnings. General Electric needs to make a radical change. By this, they need to do accounting which will give a clear view of the performance of the company as well as its prospects (Kaplan & Norton, 2001). There is the need to be transparent on the liabilities. Secondly there is need to cut the company’s debt. The company by the close of 2017 had $115 billion in debt. They thus need to work on paying the debts. They can achieve this by selling $20billion assets. Secondly, they can divest the company’s healthcare. The debts can be cleared by raising $16.9 billion through a drawdown of the Backer Hughes stakes owned by GE. They can as well sell some of their best businesses such as the UBS which could be separated and sold for about $21 billion.

The final step that can be taken to ensure the company gets back to its feet is the restoration of GE’s revenue growth. While the transparency in reporting and sorting of the debts will help turn the situation around, it might not be enough to help get the company’s stock back up. To initiate this process, the company’s revenues which shrank to 4% in the third quarter will need to be set so as to achieve a double-digit revenue as well as earnings for several upcoming quarters preferably in a row.

General Electric thus needs to refocus so as to be able to achieve its ground as it used to be decades ago. They can put in place the strategies that were used in the previous year which made the organization successful. With the implementation of these strategies, they can make some few changes so as to fit into the current economic environment. It is not advisable for the company to add any assets as at now to supplement the already available assets at it might put the company further deeper into debt and uncertainty. They need to withhold any purchases currently and focus on ensuring they stabilize first before they can restructure on any business opportunity available in the market.

Conclusion

During the company’s transition from the old performance management to the new one, so many positive things have come by which have caused a positive impact on the organization as well as its culture. Ultimately, the company’s management strategy has its focus on dialogue and people thus ensuring that a considerable amount of time is directed to ensuring the evaluation of the employees on the way they lead and their accomplishments. Both the era of Welch and Immelt are successful in their own perspectives. It depends with the factors that are used to determine success. In most cases, the Immelt’s period as a CEO was considered to be unsuccessful as his leadership was faced with so much global economic crises which destabilized the organization. Superior results hence came from both leaderships though the superiority differs. Even with this success in the portfolios, there was the need to restructure them so as to suit the changing economic demands. With the reduction in superiority of the company, a lot has been done and can still be done to make General Electric successful again.

References

Charan, R. (2016). How to Transform a Traditional Giant into a Digital One. Harvard Business Review.

Henderson, K. M., & Evans, J. R. (2000). Successful implementation of Six Sigma: benchmarking general electric company. Benchmarking: an international journal.

Kaplan, R. S., & Norton, D. P. (2001). Transforming the balanced scorecard from performance measurement to strategic management: Part 1. Accounting horizons, 15(1), 87-104.

Motley Fool. (2012, Jun 04). Stocks for the Long Run: General Electric vs. the S&P 500.

Nayab, N. (2011). The Story of Six Sigma and GE. BrightHub Project Management.

O’Boyle, T. F. (2011). At any cost: Jack Welch, General Electric, and the pursuit of profit. Vintage.

Salwan, P., & Sharma, K. (2018). Developing High Adaptive Capabilities: The Case of CISCO. Indian Journal of Industrial Relations, 54(1).

Samaha, L. (2014, Dec 19). General Electric CEOs: How Jeff Immelt Measures Up to Jack Welch’s Legacy.

Stern, G. (2016). A Tale of Two Honchos: GE’s Immelt vs. Welch. Retrieved from Investor’s Business Daily

Woods, D. (2016). What is GE Predix Really Building. Forbes Tech.