Strategic Business - General Electric - Case Study Example

Strategic Business - General Electric Introduction General Electric is a company that proudly traces its origins to Thomas Edison, the inventor of the electric bulb. General Electric is popularly known as GE. It is a world leader in research and development in technology, engineering and related services. GE specializes in Engineering, Technology, Environmental matters, Energy and Health Care (General Electric Factsheet, 2012). They manufacture aircraft engines, power generators, medical and technological equipment as well as some electronic products. GE also provides financial services and healthcare products. This paper undertakes a strategic analysis of the General Electric Company. This will involve an examination of the external environment, industrial analysis and internal strengths of GE. It will proceed to examine the structures of GE and analyze its problems and make strategic recommendations about how to get around those problems External Analysis External analysis is done through the use of PEST analysis tools (Davidson, 2010). This enables the analysis of various changes that occurred in the external environment and its effects on the strategy of an organization. Political Over the past year, the Obama administration has shown that they are willing to increase corporate taxation and collect more money from large corporate bodies like GE (CNN Money, 2012). CNN Money announces that in April 2012, the United States became the highest tax paying nation for corporate entities and the tax rate was increased to 39.8%. This indicates that there has been a significant political paradigm shift which attacks corporate entities with the hope of appeasing the masses like the group of protestors that were involved in the Occupy Wall Street marches. This poses a major threat to General Electric. This is because most of its profits is going to be taxed. This means that it would end up working for relatively little retained earnings when tax is deducted. Economic The credit crunch that occurred in 2008 affected GE tremendously. This is because it diversified its operations at the beginning of the 21st Century to focus heavily on the financial services. This means that the credit crunch had a a major impact on its financial position. Currently, the Eurozone crises has led to a situation where the US Dollar has become much stronger. This has led to the strengthening of the US Dollar. This shows that the US markets are likely to grow and expand and provide more opportunities for GE to increase their production since there will be higher demand. Also, the GDP of the United States increased by 1.9% in the previous quarter. Although this is not so huge, it indicates that the US markets are growing stronger each and there is hope that the austerity measures that was put in place is working. Social Socially, there have been major changes in the US society which is relevant to the operations of GE. First of all, there is a growing popularity in environmental consciousness. This provides an opportunity for GE to continue with its strategy of pursuing environmental responsibility. Also, globalization, which used to be quite unpopular is growing in the US society. People are more tolerant of foreign products than the were two or three decades ago. This is favorable for GE's international strategy which seeks to expand the company's operations into Asia and other parts of the world. Technological In terms of technology, there has been a lot of pressure for carbon emission cuts on the global level. Nations around the world seek to reduce the environmental footprints of human activity. This provides an opportunity for GE to utilize its research and development expertise to increase its usefulness. Industry Analysis Industry analysis involves the evaluation of different elements and aspects of a given industry. General Electric is a highly diversified entity. It has different branches and units that deals with a lot of things like healthcare, finance, IT, environmental technologies, engineering and energy. However, the engineering products and research in hardware defines GE's core competency. In the engineering and hardware industry, the main elements that mark the industry include: high capitalization, well trained research staff, technological advancement, quest for improvement and more recently internationalization (Bennett, 2011) However, the best way of examining GE's unique position is to assess its competitors and how they shape up the industry. Using the Porter's Five Forces, one can identify the main sources of competition that exist within an industry and it includes: 1. Threat of new entrants 2. Threat of substitutes 3. Evolution of buyers into competitors 4. Bargaining power of suppliers and 5. Major rivalries with in the industry (Porter, 1980) Yahoo Finance identifies three key competitors that are of the same capabilities and competencies as General Electric. They are Citigroup Inc, Koninklijke Philip Electronics and Siemens AG. These are core electrical companies that have similar capitalization strengths and produces for the same markets that GE produces for. The therefore form the main rivalries within the industry. These pose a major threat to GE and will take advantage of any mistake that it makes to capture a larger market share. GE uses a system of sourcing for its products from a range of small organizations that are fragmented and have a very limited likelihood of coming together to compete with GE on the markets. They are therefore low risk entities. The main buyers of GE's products are members of the general public and corporate entities around the world that do not have the competency of evolving to become like General Electrics. Again, they are minor threats. There is the threat of substitutes. These substitutes include the international suppliers like the Chinese who can produce cheap products which can flood the markets. These companies are major threats and need to be watched closely by the likes of GE. Also, the threat of new entrants is quite minimal. This is because there are major barriers that prevents smaller companies and organizations from growing up to beat the legacies and competencies of GE and its major competitors. However, with the right level of capitalization, small firms and businesses can evolve to become competitors. Strategic Direction According to the General Electric Leadership (2012), the company has pursed a strategy of internal growth, research and development and sector structure. This means that it has gotten a major issue with organic structure which allows the company to re-invest and also ensures that each unit operates independently of the other units. The strategy of General Electric has been focused on people, work environment, leadership, research and internationalization (General Electric Our Company, 2012). The company has focused on expanding into the emerging markets and providing environmental solutions in response to emerging matters and issues relating to environmental responsibility. The company is run by the CEO which happens to be Jeff Immelt who was appointed in 2001. The company has executive leaders who work with the CEO to run the day-to-day affairs of GE. On the other hand, the board of directors supervises its operations and activities (General Electric Leadership, 2012). Strength 1. It is a highly diversified company with different branches that ensures that risk is spread. 2. GE has a strong and efficient research and development unit. 3. The company has large market share 4. An expanding international presence around the world. 5. Strong management and culture. 6. Efficient systems and technologies and well trained staff members. Weaknesses 1. Heavily dependent on its financial services unit which is vulnerable to economic fluctuations. 2. There is a low revenue growth in some of the sectors of GE. 3. The Asian markets are not very profitable since there is a lot of competition in Asia. Opportunities 1. Gradual growth in the US economy and signs of economic recovery after a period of austerity shows that there is hope for growth. 2. The growth of the US Dollar shows that the company can produce more and increase its revenue base. 3. Acceptance of globalization around the world gives promise of the discovery and utilization of new markets. 4. The increase in environmental consciousness shows that the company would get more projects to handle in the future. Threats 1. High taxes threatens the economic growth of GE. 2. The credit crunch seem to have shown that the finance services sector of the company needs to be reinsured to prevent further upsets. 3. The growth of Chinese businesses and other Asian companies shows that there is a threat of imitations and theft of technology from GE. Strategic Recommendations and Implementation In line with the following opportunities and threats, the following recommendations and implementations are desirable: 1. Expansion of US production capacities in a proportionate manner to reflect the growth in the US economy. 2. The company needs to come up with a second phase in its globalization drive. This new phase should integrate the environmental plans and changes into the identification of new markets in foreign countries so that GE can expand its sectors and departments to utilize the opportunities around the world. 3. GE can also consider the opening up of manufacturing units and the outsourcing of various components of the business to countries where tax rates are much cheaper than the United States. This will guarantee lower costs of operations. References Bennett, J. (2011) Business Analysis Hoboken, NJ: John Wiley and Sons Publishing. CNN Money (2012) US Corporate Tax Rate Number 1 in the World [Online] Available at: http://money.cnn.com/2012/03/27/pf/taxes/corporate-taxes/index.htm Retrieved: 24th June, 2012 Davidson, J. (2010) Strategic Management Mason, OH: Cengage General Electric Factsheet (2012) Our Company [Online] Available at: http://www.ge.com/company/factsheets/corporate.html Retrieved: 23rd June, 2012 General Electric Leadership (2012) Our Leadership Structure [Online] Available at: http://www.ge.com/company/leadership/index.html Retrieved: 24th June, 2012. General Electric Our Company (2012) Culture [Online] Available at: http://www.ge.com/company/culture/index.html Retrieved: 24th June, 2012. Porter, M. (1980) Competitive Advantage New York: Free Press. Yahoo Finance (2012) GE Competitors [Online] Available at: http://finance.yahoo.com/q/co? s=ge+Competitors Retrieved: 24th June, 2012 Read More