Resource Base Analysis on General Electric Company - Example

Resource Base Analysis on General Electric Company By: TABLE OF CONTENT 0 Part Introductionto General Electric 1.1 Objectives 1.2 Introduction 1.3 Capabilities Strategies and Competitive Advantage 1.4 Limitations facing General Electric 2.0 Part 2 Analysis of General Electric Resources and Capabilities 2.1 General Electric Resources 2.2 General Electric Capabilities 3.0: Part 3: Evaluating General Electric Strategic Capability Using Relevant Tools and Framework 3.1: Diagnosing and Evaluating Strategic Capability 3.1.1: Ratio Analysis 3.1.2: Balanced Scoreboard 3.1.3: Value Chain Analysis 3.1.4: Benchmarking 4.0: Part 4: Conclusions and Recommendations 4.1: Conclusion and Recommendations 5.0: Part 5: Bibliography 6.0: Part 6: Appendix 1.0 Part 1 Introduction to General Electric General Electric (GE), an American Multinational corporation ranked amongst the Fortune 500 as one of the largest firms in the United States in terms of gross revenue (Fortune 500, 2010, p.3). Its main headquarters is in Fairfield Connecticut, United States of America (USA). The conglomerate continues to serve its worldwide network through a set of elaborate distribution network. Despite initially formed with the intention of dealing with electricity related appliances and business, GE has grown to feature in markets that are far from electricity related. This situation is thanks to the developed habit by the shareholders to acquire new companies often. For this reason, GE deals with water, oil, consumer electronics, energy, appliances and even weapons (Wald 2011, p.2). Thus, they tend to have a diversified capital base on which its objectives are carried out. Furthermore, it is spread out, with its subsidiaries having offices on a broad geographical region. The subsidiaries are effectively divided with respect to the different sectors that GE is associated with, in the same way; finances from the subsidiaries are computed separately before being consolidated. Such an accounting system allows for evaluation of performance with the obvious aim of improving profits, as well as the market dominance. Thus, it is more of a brand that is advertised and promoted to the public thanks to its broad spectrum of businesses that can be associated with GE. 1.1 Objectives This paper will assess the capabilities of GE, with special interest on the importance of these unique attributes and their contribution to a competitive advantage they give the company. A discussion of clear points will be used to indicate the importance as well as the consequences of effective exploitation of the competitive advantage. Following will be detailed analyses of GE’s resources and capabilities that will seek to describe the specific features that render the company unique. Various frameworks and tools will then be employed to evaluate the capability of the company with reference to their strategies. Elaborate explanations, as well as simple illustrations, will be used to show the effectiveness of the tools used. Reflection of the company will then offer substantial ground to relay recommendations and advise on ways of improving performance. 1.2: Introduction Importance of Capabilities and Resources and how they contribute to Competitive Advantage for General Electric Company Strategy is an act of effectively matching internal resources and skills of an organization with the opportunities and risks availed by the external environment, which is beyond their control (Edinson, 2012, p.3). For this reason, elaborate analysis of unique capabilities is important as well as recognition of potential threats that are presented to GE. Revelations from that study will offer competitive advantage to GE. 1.3: Capabilities Strategy and Competitive advantage An assessment of a GE’s capabilities in relation to its limitations provides the management with an opportunity to make policies seeking to empower their strengths while at the same time reducing their weaknesses (Enalls 2013, p.1). Attempts of making the resources and capabilities of GE a foundation for their long-term strategy purely depend on two conventions that are to be held. 1. Use of resources and capabilities act as a basic source of direction for the company’s strategy: GE’s identity and purpose ought to be stated to allow for the drafting of strategies for the company. Usually such a procedure would take the form of a mission statement that could answer to questions such as What Business does our company do? Whereby the response to the question would entail a description of the customers, the company attends to with a special focus on the needs that are satisfied, as a result. Such an identity describes the company fully (Grant 2001, p.114). 2. Use of resources and capabilities as the core source of corporate profitability: The establishment of competitive advantage over rivals of GE in the industry will act as the basic element, to determine the profitability of the company. Theory of Economics dictates that superior profits emanate from a company existing in an industry that is attractive. For this reason, strategic management should, therefore, be used to imply the measures taken by the company to seek attractive industry environments, following up with identification of segments that are favorable to the GE within the same industry, not forgetting on controlling competitive pressures from rivals. The opening up of markets has also resulted in a number of other consequences, which either positively or negatively affect the company. Possible ramifications of the open markets include technological advancement, increased international competition among others (Kaplan, 2012, p.10). 1.4: Limitations facing General Electric With the advancement in technology, previously used technology was considered obsolete and thus a cost that was to be included in calculating the profit. Venturing into new territories both geographically and marketing by diversification provided a new array of risks to the GE that were previously absent. It tended to cripple the growth and development of the GE. 2.0: Part 2: Analysis of General Electric Resources and Capabilities 2.1: General Electric Resources A powerful combination of tangible and non-tangible resources offers the foundation for laying of long-term strategies at GE. Furthermore, broadening the aspects of their business further increased the numbers of customers that are to be served by GE (Hinler 2010, p.6). The company has the strength to spread its tentacles over and across the energy industry. From oil and gas production to even distribution of simple home electrical appliances, GE has the ability to foster its long-term strategies by acquiring other companies resulting in a fully-fledged conglomerate. This implies more resources for GE that translate to a possible competitive advantage. Again, thanks to the many businesses GE is associated with, the company enjoys a bigger human resource base than most competitors. Economics defines a huge labor force as being key to the effectiveness of production, holding other factors constant. 2.2: General Electric Capabilities GE is composed of inter-related subsidiaries, which include GE Aviation, Healthcare, Transportation, Capital, Oil & Gas, Global Research, Power & Water, Home & Business Solutions and Energy Management. With such a powerful base, the company has a huge financial ability to transact profitable business. It is capable of favorably competing for demanding tenders that require huge financial muscle. Given the special attribute of dealing with huge of amounts of money for instance, GE is privileged over other smaller companies as it tends to have higher money flow required for awarding of tenders. 3.0: Part 3: Evaluating General Electric Strategic Capability Using Relevant Tools and Framework 3.1: Diagnosing and Evaluating Strategic Capability 3.1.1: Ratio Analysis Relative Performance Industrial versus 20 Peers GE Peers Quartile Organic Growth (%) 8 3 1st Margin (%) 15.1 11.5 2nd Returns (%) 15.5 10.3 2nd GE Capital versus Banks GE Regional banks Money Center Banks Tier 1 common ratio Basel 3 (%) 8.8 8.1 8.7 Liquidity Coverage Ratio (%) 296 61 116 Net Interest Margin (%) 4.9 3.7 2.9 (Immelt .J, 2012, p.2) 3.1.2: Value Chain Value chain analysis is the process by which a company attempts to generate an exemplary high value for their customers and proceed to maximize it for increased profit. A simpler definition that could be use is the steps from raw material to the end-user that are intended to make a product suitable (Almech 2011, p.1).In the case of external customers, adding value to a product has a simple implication that the consumer will pay more for it and thus increased profits for the company. To them, value is perfect quality, offered at affordable prices and with relatively fast delivery. Figures show that GE undertakes a 6% of the total industrial revenue into research and development. General Electric has given itself a period of around 5 years to improved its handling of; outbound logistics, inbound logistics, marketing & sales, service as well as operations, which constitute the activities that the company undertakes. Within this period the value chain analyisi should yield results for the company.The relationship between the customers and suppliers related to General Electric is enhanced by a system that links the parties known as the Client Business Services Inc. Here, outbound shipments, freight bills and outbound shipments are all integrated into the system, resulting in operational efficiency as well as reduced life cycle costs for the company (Almech, 2011, p.1). 3.1.2: Balanced Score Card A balanced score card is another tool that could be used to measure and analyze the performance of the company in relation to its strategies. Finding its way in the industry, government as well as business, the tool helps monitor the performance of a given company with respect to its strategic goals (Adams 2014, p.1). The tool has evolved from merely being used to measure an overall performance of the company to become a strategic device for effective planning and management. It prescribes to the managers what they are supposed to measure in order to balance the financial perspective of the company. More to that it acts as management system that accords managers the ability to clarify their vision and strategy further translating them into day-to-day operations. Feedback could also be got from it on whose grounds activities in the company could be altered with the aim of improving strategic performance as well as the outcome. According to the balanced score card, we ought to view the company about four core perspectives, collecting data relevant to each of them and analyzing it accordingly. The perspectives include: 1. The Business Process Perspective: These entail the internal business activities of the company. 2. The Financial Perspective: These stipulate the need for timely and precise data. 3. The Customer Perspective: These show the role played by customers as the core to the existence of any company. A simple explanation of these is a simple phenomenon experienced in day to day business transactions, where an unsatisfied customer will seek the services of another supplier deserting the original one. 4. The Learning and Growth Perspective: This usually includes the enhancement of acceptable corporate attitudes and employee training. The management at General Electric’s should draw a balance card for its decentralized business units. A time span of 5 years is effective for the course as within then, the true performance of the company is established. The list should include: Profitability of the company, the company’s market share, the company’s productive ability, product leadership, the attitude of the employees, the balance between short-range and long-range objectives, employee training and development as well as public responsibility in respect to legal and ethical responsibilities of stakeholders of the company (Almech 2011, p.1). The metrics mentioned lie in either of the available perspectives, and they can be supplemented by questions such as Am I doing well? Which are the problems that I am supposed to look into? Among the list of possible solutions, which is the best? Responses to the questions could be used to offer the much-needed sense of direction and yield improved results for a given company. The reason is simply the practical nature of the objectives, which consequently imply straight-forward mission statements. It is very important to thoroughly investigate and research before making decisions entailing a company’s objectives as they influence the basic day-to-day activities. An analysis on GE’s financial performance revealed the following figures on a time span of 6 years: Consolidated revenue in $ billions 2008 180 2009 154 2010 150 2011 147 2012 147 Operating Earnings in $ billions 2008 16.9 2009 9.9 2010 12.4 2011 14.9 2012 16.1 Cash flow from operating activities in $ billions 2008 19.1 2009 16.4 2010 14.7 2011 12.1 2012 17.8 (Immelt 2012 ,p.2) In 2012, figures indicate that GE had quite a significant levels of growth as revealed in the information below: Growth in industrial segment earnings +10% % of total industrial operation earnings 55% Cash received from GE Capital $6.4 billion Industrial segment Organic Revenue Growth +8% Margin growth +30bps, 15.1% Cash returned to investors $12.4 billion Returns on total capital 11.7% (Immelt 2012, p.2) 3.1.3: Value Chain Analysis In order for a GE to assess whether its resources yield a competitive advantage that is sustainable for the future. The company is supposed to investigate whether its resources are valuable, rare inimitable and non substitutable within a time frame of say 5 years. Within this duration if GE finds out that what it considers its resources can be produced easily by other companies, then those resources do not qualify for competitive advantage. The table below helps that course as it indicates the activities with which the running of GE is associated. Human Resource Management: Favorable working condition coupled by a strong culture that appraises excellence make GE qualify as a robust force to reckon with. Technological Advancement: innovation and invention are greatly encouraged at GE with a strong research team mandated with the responsibility of improving the efficiency of products of GE. Supplies and procurements: Thanks to its dominance in the market GE acts as a price dictator, furthermore its annual acquisitions ensure it never runs short. Day to day Operations: A high level of professionalism is expected from the employees from production to delivery of the product so as the GE brand is promoted. Internal logistics: Enhanced by GE’s available resources. Raw materials are easily available. External logistics: The employees who deliver the GE product control this activity. Sales & Marketing: Competition in the industry makes advertising a necessity in order to ensure competitive advantage and increase sales. Key factor: Most customers will relate to a quality product that is well advertised. Now, careful study of the above table with special consideration on their interlinking relationships will yield positive yields for GE. Sales & marketing is identified as the most important activity and thus strategies developed should consider that concept. 3.1.4: Benchmarking An alternative method that could be employed in seeking to find the best strategies for exploitation of competitive advantage is benchmarking. GE is strategically positioned in the industry and thus it can compare financial performance for instance with other related companies such as United Technologies Corporation and Caterpillar Inc. 4.0: Part 4: Conclusions and Recommendations 4.1: Conclusion and Recommendations Thorough conducting of the value chain analysis on General Electric, the company suffers from inadequate marketers for their products; thus maximum sale levels are not attained. The advisable way forward would, therefore, be selection of crucial strategic decisions by the management meant to give branding to General Electric to be able to influence the market orientation to its favor. The transformation of the company business framework is essential in fostering the above objective with keen interest on the following elements: people, principles and processing (Almech, 2011, p.1). General Electric also suffers from poor customer relations resulting in dropping sales levels at alarming rates. Due to automation of customer relations, the company is seen to lose the clear expectations of their customers. Poor sales abilities by some of the employees of the company also tend to detriment of profits by lowering the sales levels. A resolve that would salvage the sorry state would be a renewed commitment by salespeople to the customers with a positive attitude to increasing sales. More to that, general Electric could offer repairs, refurbished sales, spare services as well as other forms of after sale services in an effort to improve its image among in the market(Immelt 2012 ,p.2). Venturing new territories could also aid in increasing General Electric’s sales base, such regions as Northern Asia, Latin America and even Australia could greatly improve sales levels for the company, offering rise in new opportunities, as well (Edinson 2012, p.3).. 5.0: Part 5: Bibliography References Brown, M. (2013). BRITAINS MOST ADMIRED COMPANIES 2013. Management Today, 1(1), 38-39. 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Appendix 1: Financial Ratio Calculations The ratios shown below offer a detailed explanation of the calculations carried out in the main text as well as offer a description of what they are meant to show. Ratio Calculation What it Shows Margin growth Revenues-costs Illustrates the level of profitability of the entire company from a base period. Cash flow from operating activities EBIT + Depreciation - Taxes Used to show money flowing into the company from regular business activities. Operating profit margin (Revenues-Operating expenses)/Revenues Used to show the profitability of current operations assuming interest charges and income taxes. An upward trend is preferred. Operating earnings Revenues-operating expenses These are profits arrived at after deducting the operating expenses associated with those revenues. EBIT: Earnings Before Interest and Tax Appendix 2: Value Chain Analysis Definitions Definition and description of the following resources and capabilities will enlighten the audience on matters of capability of G.E and thus strategically place the company to reap competitive advantage. Resource/ Capability Definition Description Favorable working conditions Supports effective implementation of company strategies A firm’s working conditions are only favorable if they yield effective implementation of strategies. Efficiency Reduces costs of producing products while maintaining high quality A firm’s strategies are only effective if when employed they yield maximum benefit at the cheapest cost. Price dictator Mandates a company to assert prices to be used in the market. A company is only a price dictator if it is the dominant player in the industry. Competitive advantage It gives an edge to a company to compete favorably. A company possesses a competitive advantage if it can combine various value factors to produce a product that outperforms those of competitors. Appendix 3: PESTLE Analysis The author to offer detailed explanation on the political, economic, socio-cultural, technological, legal and environmental factors that influence G.E’s activities uses the following explanation. Factor Description Political The fact that G.E is a multinational implies that its presence in many countries has to be in accordance to the political systems of those countries. China for example is found to have more restrictive business regulations than U.S.A. Economic Profitability and productivity levels in G.E are highly influenced by such economic conditions as inflation and deflation indifferent countries it is based. Socio-cultural Such factors as working hours, employment policies and types of goods produced determine how a company is to conduct itself while in a given societal context. With G.E being a multinational, the challenge is even bigger and more demanding. Technological As the leader in technology and innovation, G.E’s has invested in the sector heavily. In fact, it has a significant presence in the two countries that have the highest technology growth rate. Legal Although, G.E is involved in environmental unfriendly activities such as oil drilling, the company makes up by investing in environmental friendly energy such as wind and solar. Environmental Compliance is difficult for G.E considering that it is involved in over a hundred different countries. It is important that G.E maintains compliance in both domestic and international businesses. Appendix 4: Graphical Illustration of G.E’s performance The graph above illustrates G.E’s performance over a significant number of years in terms of returns. Read More