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General Electric
General Electric has historically diversified into many industries, both related and unrelated to its original focus on electricity generation. In recent decades, GE has refocused on industries related to its core competencies of innovation, management training, and tax strategies. GE's aviation, healthcare, oil & gas, power & water, and transportation divisions are considered operationally related, while GE Capital is viewed as unrelated. The presentation analyzes the operational relatedness of key GE divisions and concludes GE should focus on related areas while being careful not to fall into question marks or dogs in the BCG matrix.
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General Electric
- 1. General Electrics Presentation BriefView to Diversification (UN)Related Diversification 06/11/2013 Julian Kimora, Scott Lichtenstein, Erdem Tokmakoglu
- 2. 2 Contents GE GE Overview andHistory1 AviationA 2 GE Core Competencies and Divisions HealthcareB Relatedness3 GE CapitalC NBCUniversalD Conclusions4
- 3. 3 GE’s PAST toPRESENT (GE website) Appendix 2 5 1926 X-Ray 12 1990 Tomography 2 1900 Steam Turbines 3 1905 Bond& Share 11 1987 GE Capital 1 1892 Foundation 8 1938 Boxbob Locomotive 14 2013 GE Sells Completely NBC 9 1953 Lexan Accidentally Developed Coating 7 1935 First Garbage Disposal 4 1919 Radio Corp. of America Formed 10 1986 GE Reacquires RCA, Forms NBC 6 1932 Credit Foundation 13 2004 Boing 787
- 4. 4 KEY INFORMATION (Yahoo Finance) GEOutline Founded: 1892 Headquarter:Fairfield, Connecticut, CEO: Jeffrey R. Immelt Global Locations: more than 160 countries Employees: 305,000 Total Revenue: 147,359,000,000 USD Operating income(EBT): 17,406,000,000 USD Net income: 13,614,000,000 USD One of the 12 original Dow Jones Industrial Average members Various M&As have shaped GEs organisational structure
- 5. 5 0 $ 40 $ 80$ 120 $ 160 $ 200 $ 2008 2009 2010 2011 2012 Sales/Revenue Gross Income Research & Development EBITDA ANNUAL FINANCIALS (Marketwatch) APPENDIX 1 Total Assets 717.26B 2012 Total Liabilities 588.79B 2013 Total Equity 128.57B 2013 Net Operating Cash Flow 31.33B Billions
- 6. 6 ORIGINAL BUSINESS AREAS ORIGN Originalbusiness areas were focused on the generation and application of electricity. Power Plants Transformers Electric Locomotives X-ray Tubes Household Goods
- 7. 7 MEET THE KEYPEOPLE People 1981 CEO Jeffrey Immelt CEO 2001 - Present “worlds best CEO“ (Barron), Restructured GE, selling unrelated assets and focusing on core businesses -However, GE stock is over 40% lower than when he took over John Welch Chairman & CEO 1981 - 2001 Joined GE as chemical engineer in 1960 Increased market cap from $13 bil. to several hundred billion Streamlined operations and reduced bureaucracy ”Manager of the century” (Fortune Mag. 1999)
- 8. 8 EXTERNAL STRATEGIES THAT CREATECORE COMPETENCES ABOUT GE Few Corporate Layers Where the ideas are born Only 4 Corporate layers Very few corporate staff Therefore more differentiation Power Differentiation, Portfolio Investments, Value Creation, “Aggressive acquisition & expansion strategy” Regularly acquire firms in times of economic downturns which improves customer values Technical Leadership Promoting the work Innovation %6 Investment on Research Over Revenue
- 9. 9 CORE COMPETENCIES ABOUT GE Innovation Cultivationin them of an insatiable desire to learn, to stretch and to do things better every day. GE uses its capabilities in R&D to continue to produce some of the world’s most innovative industrial products Tax Strategies Corporate Profit Accounting to reduce tax liabilities (Scott 1977) GE famously paid no US income taxes in 2010 despite earning a profit of $5.1 billion in the country that year. The company employs 375 lawyers in the largest tax department in the world” (AP) Corporate Organisation Design Strategies The global recruitment and nurturing of worlds best people (GE 2011) GE spends over $1 billion annually on management training (WSJ) “Session C” management training and performance review every year Financial Economies of Scale Cross-business synergies from debt coinsurance effects In a moderating growth operating environment and greater uncertainty,we believe investors will gravitate to GE's late-cycle exposure, high-margin services mix, emerging markets strength, and attractive earnings visibility/consistency,’ Dray wrote in a note to investors.” (AP 2006)
- 10. 10 Relatedness General Info Corporate Relatedness Theapplication of core competencies to different business areas All of GE’s divisions share their core competencies of innovation, management training, and tax strategies Operational Relatedness The sharing of skills and inputs across different business areas GE’s divisions sometimes require different inputs and skills We will analyse the Operational Relatedness of a few key divisions
- 11. 11 GE CORE SECTORS Appendix3 1. Finance 2. Power & Water 6 Transportation 7. Aviation 8. Home &Business Solutions 3. Oil & Gas 4. Power & Water 9. Energy Infrastructure A. Powering B. Curing D. Building 5. Health C. Moving Premier Infrastructure Company
- 12. 12 GE SEGMENTS (CSI MARKETDATA) ANALYSIS Total Revenue $147,469M 2012 46.039 7.967 5.608 18.290 19994 7412 15241 28299 %31 %5 %4 %12%14 %5 %10 %19 Power & Water Oil & Gas Energy Management AviaCon Healthcare TransportaCon Home & Business SoluCons GE Capital Most margin over revenue – Energy Infrastructure Million USD
- 13. 13 GE AVIATION (GE website) GEFAILURE In 1917, GE was granted a US military contract to build the first superturbo charger for airplane engines for the US entry into WWI By the beginning of WWII, all US Air Force planes were using GE engines GE built the America’s first jet engine in 1942 In 2012, GE Aviation had revenue of $19.994 billion, which is 14% of GE’s total revenue Today, a plane flying with GE engines takes off every two seconds somewhere in the world
- 14. 14 GE AVIATION RELATEDNESS (GEwebsite) Sectors R&D Skills First turbocharged & jet engine Advanced engineering, long design period Revenue: $19.994 Million 14% of GE’s total revenue in 2012 Manufacturing Both machinery and aircraft engines require complex products Manufacturing focuses on precision and durability rather than volume Currently Boing 787’s engine supplier Inputs Engines require complex electrical components Conclusion Corporate & Operationally related
- 15. 15 GE HEALTHCARE (GE website) GEFAILURE GE Healthcare began as “GE X-ray Corp” in 1926 when GE merged with Victor Electric, a manufacturer of X-ray tubes In the 1950s and 1960s the company began manufacturing pacemakers and patient monitoring equipment In the 1980s, GE Medical began investing heavily in MRI and CT machines Name changed to GE Healthcare in 2001 2012 revenue of $18.29 billion, which is 12% of GE’s total revenue
- 16. 16 GE HEALTHCARE RELATEDNESS (GEwebsite) Sectors R&D Skills Biology research and biomedical engineering are different than electrical and industrial engineering Revenue: $18.29 Million 12% of GE’s total revenue in 2012 Manufacturing A higher number of product categories sold than power generation machinery and more units sold per category Inputs Biomedical products require small and intricate parts, some of which are electrical Conclusion Somewhat operationally related
- 17. 17 GE CAPITAL (GE website) GEFAILURE In 1905, Electric Bond Share Co. is established to finance small utility companies In 1932, GE Credit Corporation is founded to provide credit for families purchasing GE appliances Had branched into credit cards, personal loans, mortgages, savings accounts, and other areas of consumer finance by the time the name was changed to GE Capital in 1987 Currently also involved in energy derivatives trading, real estate, and asset-backed securities issuing in 55 countries with over 50,000 employees Had $46 billion in revenue in 2012, which was 31% of GE’s total revenue.
- 18. 18 GE CAPITAL RELATEDNESS (GEwebsite) Appendix 2 R&D Skills Financial market analysis and economic intuition are very different than electrical engineering Revenue: $46 Million 31% of GE’s total revenue in 2012 Manufacturing No manufacturing is required for GE Capital Inputs Human capital is largest input Conclusion Not operationally related
- 19. 19 GE TRANSPORTATION (GE website) Appendix4 R&D Skills First turbocharged & jet engine Advanced engineering, long design period Revenue: $5.608 Million 4% of GE’s total revenue in 2012 Manufacturing High-horsepower diesel-electric locomotives which share gear and engine tech. Inputs Engines require complex electrical components Conclusion Corporate & operationally related
- 20. 20 GE POWER &WATER (GE website) Appendix 5 R&D Skills Advanced engineering, long design period Revenue: $ 28,299 Million 19% of GE’s total revenue in 2012 Manufacturing Water purification systems, pumps, valves, filters and fluid handling equipment for improving the performance of water, wastewater and process systems, including mobile treatment systems and desalination processes, floating use similar technical structure with engines. Inputs Engines require complex electrical components Conclusion Corporate & operationally related
- 21. 21 GE OIL &GAS (GE website) Appendix 6 R&D Skills First turbocharged & jet engine Advanced engineering, long design period Revenue: $15,241 Million 10% of GE’s total revenue in 2012 Manufacturing floating production platforms, compressors, turbines,high pressure reactors, industrial power generation and a broad portfolio of equipment use similar technical structures with engines and pumps. Inputs Engines require complex electrical components Conclusion Corporate & operationally related
- 22. 22 GE HOME &BUSINESS SOLUTIONS (GE website) Appendix 7 R&D Skills First turbocharged & jet engine Advanced engineering, long design period Revenue: $7,967 billion 5% of GE’s total revenue in 2012 Manufacturing Both machinery and aircraft engines require complex products Manufacturing focuses on precision and durability rather than volume Currently Boing 787’s engine supplier Inputs Engines require complex electrical components Conclusion Operationally related
- 23. 23 NBC UNIVERSAL 1 (Forbes) GEFAILURE GE founded RCA in 1919 as a subsidiary to manufacture radios RCA launched NBC in 1926 as America’s first broadcast radio network in order to sell more radios GE sold its stake in RCA in 1932 GE repurchased NBC in 1986
- 24. 24 NBC UNIVERSAL 2 (Forbes) GEFAILURE GE bought 80% of the movie studio Universal for $5.9 billion in 2004 and merged it with NBC to create NBCUniversal GE sold 51% of NBCUniversal to Comcast in 2011 for $6.5 billion GE sold the remaining 49% to Comcast in 2013 for $16.7 billion NBC had dropped from the number 1 US network in the 1990s to number 4 at the time of the sale
- 25. 25 NBC UNIVERSAL RELATEDNESS (Forbes) GEFAILURE GE NOT operationally related at all Skills and inputs for hit TV shows and movies very different than for heavy industrial manufacturing (creativity versus engineering) Sale to Comcast driven by changes in the entertainment industry Growing power of cable: In 2011, 90% of US homes had cable TV subscriptions and spent twice as much time watching cable as watching broadcast TV (Nielson) Rise of the internet: Netflix has 30 million US streaming subscribers and Hulu has 4 million (NY Times)
- 26. 26 BCG Matrix Analysis Oil &GasAviation Power & Water Transportat ion Home & Business Low High Market Share LowHigh MarketGrowth Healthcare GE Capial
- 27. 27 CONCLUSION LAST WORDS “One-stop shop’for developing countries (NYT 2005). To achieve this objective, Jeff Immelt formed vertical cross- business teams in Healthcare, Energy, Water, and Rail that focused on company-to-country relationships in developing countries (GE 2004, 2005)”. Mainly focus on related areas. GE capital is not related but the most profitable. GE should be careful not to fall into “?” or “Dog” Immelt is trying to refocus GE on their core businesses
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- 29. QUESTIONS & ANSWERS Go ahead.Don‘t hesitate.