R&D Investment has increased by 2.5 billion dollars since 2001 to aid growth in businesses such as oil and gas, life sciences and Distributed Power.
GE Case study
GENERAL ELECTRIC:FROM JACKWELCH TO JEFFREY IMMELTBy:Ashish Chandra SinhaTata Consultancy Services
Financial Snap-Shots till 201331%64%5%GE CapitalGE InfrastructureGE Home & businesssolutions201246%36%14%5%GE CapitalInfrastructureGE Home & businesssolutionsNBC20010.00%2.00%4.00%6.00%8.00%10.00%12.00%14.00%16.00%0204060801001201401601802002005 2006 2007 2008 2009 2010 2011 2012$bnRevenue Profit Net Margin Total revenue of $147.4bn in 2012Continued reduction in scale of GE Capital to create a morefocused financial service division2nd phase of divestment of NBCU and its real estate completedwhich created additional cash of $18.1bn , which is to be used forshort term value creationFocus on expansion in growth regions such as China, SaudiArabia, Brazil and Kazakhstan through localization and partnershipsAnnual Net margin, Revenue & Profit Sector wise Distribution of Revenue
Change in approach over timePre 2001: Demand for uncompromised growth through acquisitionsand divestments. Emphasis on efficiency and quality improvement Increased commitment to develop GE into a service basedcompany(since 1995) GE Capital Service’s explosive growth and NBC acquisitiontransformed GE from purely manufacturing company to onewith an important service component. Target market confined greatly to Europe and US.Post 2001: GE relying on growth from within. Marketing being used as a vital operating tool to spureconomic growth. Product leadership through innovation and focusedacquisitions Increased investment on R&D to aid growth in businessessuch as oil and gas, life sciences and Distributed Power. Reorganization to project GE as ‘Infrastructure leader’ witha smaller financial services division. Addition of rapidly growing regions such as Pacific regionand Middle East and Africa into target market0%10%20%30%40%50%60%70%80%90%100%2000 2010 2012Pacific Basin,MiddleEast &AfricaUS & EuropeYear Expenditureon R&D as a% of revenueNumber ofpatentsRank1998 1.53 729 161999 1.67 699 202000 1.87 787 192010 2.61 1222 142011 3.12 1444 102012 3.05 1650 8Area-wise revenue DistributionEffect of investment in R&D
Key takeaways from Jack Welch leadership style•Get rid of unnecessary bureaucracy•Ensure smooth flow of ideas to develop solutions across variousfunctionsBoundary less anddelayered organization•Organization must be able to learn from within as well from outside•Implement industry best practices to improve quality and lowercostsCreating a learning culture•Important to separate the performers from the bunch and groomthem for larger assignmentsApply vitality curve•Invest in management training programs•Develop deep bench of executive talentInvestment on corporatetraining
Key takeaways from Jeffrey Immelt leadership style• Invest in R&D , even during slowdown or recessionInvest in R&D• Profile of the target company must fit with the business portfolio• Primary product should hold significant potential for long term growthAcquisitions• Treat marketing as a rigorous function at par with other functions such asfinance and human resources• Use Marketing as a tool to drive more-direct collaboration withcustomersSophisticated marketing
Difference in leadership styleJack Welch Jeffrey ImmeltImposing leadership People Oriented personalityCreate leader from within the organizationthrough management training programsAlso brought a number of outsiders to top positionsin the company to bring fresh ideas and newperspectiveFocused on acquisitions Focused on innovationLeading market through product qualityimprovementLeading market through product leadershipStrong emphasis on quantification ofperformanceAdditional abstract parameters such as creativity,strategy included to evaluate the performance moresubjectivelyBelieved in setting short term targets and realtime planningInvested in long term planning and strategy andencouraged risk takingDeveloped generalists by rapidly rotatingmanagers through different divisionsDeveloped specialists by keeping managers for arelatively longer time
Application of GE leadership style to organization lifecycleBirthGrowthMaturityDecline/Revival•Growth through acquisitions•Strong emphasis on processimprovements to improveproduct quality and reduce cost20022012Challenges:•Unfavorable macroeconomiccondition caused by slowdown, and9/11 terrorist attack•Changing industry dynamics due toslowing demand and strong regulatoryoversight1981Growth through reorganization, marketingstrategy and innovationFocus on global markets, and strongercustomer ties2001Challenges :•High recession andunemployment rates•Strong dollar hitting totalproduction and manufacturingJack Welch Jeffrey Immelt
Industry best practice- Six SigmaPros ConsClear focus on achieving measurable and quantifiablefinancial returns .Improving an already existing process gets more attention while newproduct development and disruptive innovation might take a backseat.Six Sigma methodology integrates human elements such ascustomer focus with process elements of improvementCannot be applied with the same effect across every industry and ismore suited for manufacturing industry.Reduction in process cycle times Certification process is non standardized and level of the skills andexpertise developed by Black Belts/Green Belts are inconsistentacross companies.Emphasises the importance of data and decision makingbased on facts and data rather than assumptions and forcespeople to put measurements in place.Statistical definition of six sigma (3.4 million defects per millionopportunities) does not classify the level of defects.