GE Healthcare Business Level Strategy - General Electric Company - Case Study Example

GE Healthcare Business Level strategy By (Student) (Course) Instructor: Institution: Date: Table of Contents Introduction 3 1The Corporation (General Electric Company) 3 2Strategic Business Unit (GE Healthcare) 4 2.1GE Healthcare product line 5 3GE Healthcare Revenue 6 4GE Healthcare External environment analysis 6 4.1Political factors 7 4.2Economic 7 4.3Social 8 4.4Technological 8 4.5Environmental 8 4.6Legal 9 5GE Healthcare source of sustainable competitive advantage 9 6GE Healthcare strategic direction 11 Conclusion 11 Introduction Multinational businesses in the world operate in an environment characterized by various forces that may present opportunities or threats to the ability of the business to meet its strategic goals (Biggadike, 2012). As noted by Betts, et al (2015), for diversified multinational companies, it is always a prudent move to structure the business into strategic business units that will focus on fulfilling the needs of the specific market segments or industries that a product/service sells in. This means that such strategic units may analyze the unique external environmental and internal capabilities and resources to improve their competitiveness in the market. Such businesses should seek to increase and strengthen their valuable, rare, inimitable and non-substitutable resources to enhance their competitiveness in the market (Newbert, 2008). The main focus of this report will be to analyze the Competitive Environment and Business Level Strategy of GE’s healthcare business with a view of providing an appropriate strategy direction recommendation that can be adopted by the management for better performance. 1 The Corporation (General Electric Company) Corporations are typically large companies whose shareholders own the the company on a joint-stock basis. Corporations normally have their liabilities limited to the investment made by the owners. As such, a corporation is regarded as an autonomous legal entity that is distinct from its owners (Judge and Li, 2012). As noted by Guillén, et al (2009), most large corporations operating as multinationals normally have a range of product or service portfolio. A product portfolio is a collection of all products that a company sells in the market to generate revenue. Such products have different market shares, growth rates and in some cases customer segments (Palia, 2017). For the purpose of this report, this paper will focus on analyzing the General Electric Company, a New York Stock Exchange-listed company that employs more than 295,000 workers worldwide. General Electric (GE) is a diversified corporation that operates under various segments including Aviation, healthcare, oil and gas, transportation, power generation, renewable energy, pharmaceutical among others. The company is headquartered in the United States but operates globally through its various subsidiaries. In the year 2016, GE generated $123.7 billion in revenue. GE healthcare business accounted for 15% of its revenue in 2016. The business provides essential healthcare technologies in medical imaging, digital solutions, diagnostics, pharmaceutical manufacturing among others [Gen16]. 2 Strategic Business Unit (GE Healthcare) According to Noori (2015), a strategic business unit is a typically a fully functional and distinct unit of a corporation that has its own management structure, market focus and product/service offering. A strategic business unit (SBU) may have its own vision, mission and set of objectives that are aligned with its financial and growth targets. However, SBU report directly to the parent corporation headquarters on the status of its operations and financial performance (Tillmann and Goddard, 2008). According to Nippa, et al (2011), strategic business unit may operate as an independent subsidiary of the parent company or a business division of a corporation. Corporations prefer to operate under SBUs to gain the advantages associated with such operational arrangements. SBUs can be managed independently from other business interests thus allowing a corporation to compete effectively in different industries or market segments (Desai, 2009). In the case of General Electric, GE Healthcare is a fully-owned subsidiary of the parent company [Gen16]. 2.1 GE Healthcare product line GE Healthcare is headquartered in Chicago, Illinois, United states and sells its products and services in over 140 countries. GE Healthcare employs 54,000 workers in its various divisions. “GE healthcare systems” provides a wide range of technology products in diagnostic imaging. Such products include X-ray, Computed tomography, digital mammography, magnetic resonance and molecular imaging technologies. Clinical systems include ultrasound, bone densitometry, patient monitoring, incubators, and infant warmers. “Life sciences” offer products, services and manufacturing techniques that aid research and drug discovery in the biopharmaceutical industry industry. “Healthcare digital” develops and markets medical technologies, software and cloud solutions, and analytics that improve the quality and accessibility of healthcare across the world. As noted by Hennart (2012), a product line is a group of related products under a portfolio offered by a company. In the case of General Electric, the “GE healthcare systems”, “Life sciences” and “Healthcare digital” is a product line under the GE healthcare SBU that are focused on meeting the needs of GE clients in the Healthcare and related industries. All the products in a product line must carry the company’s brand name [Gen16]. 3 GE Healthcare Revenue Revenue is the Total of the income derived from the normal activities that business engages in. this includes the sale of goods and services to customers and any other sources such as interests, license fees and royalties (Azim and Azim, 2012). GE Healthcare analyses its revenues and expenses independently but reports the same to the parent company. In the year 2016, GE Healthcare generated $18.3 billion in revenue up from $17.6 billion in 2015. This represented 15% of segment revenues for the General Electric Company. The profit derived from 2016 revenue was $3.2 billion. GE healthcare has maintained a consistent performance in the past three years as the unit generated $18.3 billion, $17.6 billion and $18.3 billion in 2014, 2015 and 2016 respectively. However, this may be an indication of stiff competition in the industry and/or growth stagnation. Services accounted for 43% of GE Healthcare revenue while equipments accounted for the rest 57%. “Healthcare Systems” sub-segment accounted for 70% of the revenue generated by GE healthcare. GE Healthcare generated 90% of its revenue from the U.S. Europe and Asia, which accounted for 46%, 20% and 24% respectively. According to GE, revenue from GE Healthcare grew by 4% in 2016 due to increased sales volumes in “life Sciences” and “Healthcare Systems” sub-segments [Gen16]. 4 GE Healthcare External environment analysis According to Yüksel, (2012), a business operates in an environment where its operations are affected by both micro and macro level factors. Micro level factors are typically internal elements that can be controlled by the business. Such factors include costs, staff performance and managerial competence. Macro level factors are elements within the industrial contexts that the business has little or no influence over. Such factors include Political, Economic, Social, Technological, Environmental and Legal operating environment. Vrontis and Pavlou (2008), further observe that it is critically important that a business understands the non-controllable factors in its operating environment so as to develop appropriate corporate and business level strategies that improve its competitiveness. GE healthcare is headquartered in the United States. However, it operates in over 140 countries spread across North America, Latin America, Europe, Asia-pacific, Africa and Middle East [Gen16]. This means that GE Healthcare operating environment is at a global level. As such GE healthcare is affected by macro level factors at both domestic and global levels. 4.1 Political factors In the United States, GE Healthcare business may be affected by the uncertainty surrounding the Affordable Care Act that the new political regime intends to repeal. A repeal of the Affordable care Act means low demand for services and equipments in healthcare sector. This could potentially lower its income from U.S. operations due to reduced demand for equipment and services. At a global level, GE healthcare services and products may be affected by political interference and irregular tender allocations in emerging markets where firm procurement structures are not in place. 4.2 Economic GE Healthcare internationalization plan is dependent on the economic growth trends in different regions. In 2016, china was the best performing international, market for the company. However, the sluggish growth of the Chinese economy could hurt GE Healthcare income in the future. There is a lot of economic uncertainty in the Euro Zone after Britain voted to exit the monetary union. A weak Euro currency will mean that GE reporting revenue in U.S. dollar terms may be negatively affected by currency fluctuation as it is the case for multinational companies globally (Makar and Huffman, 2008). Moreover, austerity measures in the euro zone may reduce demand for medical equipments and services in the healthcare sector. 4.3 Social Due to increased population growth in the emerging economies of Asia, Americas and Africa, the demand for healthcare services and equipments is at an all time high. However, pricing will be a major consideration for Healthcare business such as GE Healthcare. Globally, imaging technology is also in high demand to address the diagnosis of various types of cancers for early treatment (Jakovljevic, 2014). 4.4 Technological The healthcare industry is characterized by stiff competition as companies engage in development and application of new scientific knowledge, technique and applications in production of equipment and delivery of services [Gen16]. It is critically important that companies stay up to date in relation to new developments in biopharmaceutical, imaging, IT and digital technology as new technological development in the healthcare industry could easily make existing one obsolete thus leading to massive losses. 4.5 Environmental Globally, corporations are under close scrutiny by governments, media and activists groups due to perceived noncompliance with laws designed to protect ecosystems (Jarzabkowski, and Spee, 2009). Currently, GE operations might not be significantly affected by environmental concerns as they do not involve sourcing and value chain activities that have a direct impact on the environment. However, the company may need to have its production facilities comply with all environmental requirements by the local authorities. 4.6 Legal Healthcare multinationals operate in different jurisdictions that have different legal and regulatory requirements. Healthcare is a crucial industry that affects people wellbeing directly. Governments maintain close supervision to protect citizens from harmful products and financial exploitation. It is important that companies comply with the procurement laws and health & safety laws that relate to sale, distribution and servicing of medical equipments in different countries or regions. Failure to comply with such regulations may result in costly penalties for a company such as GE healthcare. 5 GE Healthcare source of sustainable competitive advantage As argued by Ren, Xie and Krabbendam (2009), a firm gains sustainable competitive advantage when it develops a combination of unique attributes that allow it to outperform its rivals in the industry in terms of volume of sales made and market share dominance. The resource-based view established four criteria that determine a firm’s competitive capability; value, rarity, inimitability, and non-substitutability (Newbert, S.L., 2008). Value a valuable resource must enable a business create a strategy that makes it more efficient and/or effective than its competitors (Newbert, S.L., 2008). However, such a resource must be rare to be inaccessible to rivals. GE has over the years developed a strong organizational structure with people, systems and resources organized in such a way that it is relatively easy to manage complex projects. GE Healthcare also holds several patents and licenses for the technology developed by its R&D activities. GE brand is a strong brand associated with quality and reliability from decades of innovations and success globally. Rarity a rare resource is inaccessible to competitors (Newbert, S.L., 2008). GE healthcare strong organizational structure is not entirely a rare resource. Formidable competitors may already have developed such appropriate structure to manage complex global operations. GE Healthcare innovations in areas such as MRI technology, patient management, Life sciences, and Digital and software solutions are rare resources that may give it a competitive advantage over rivals. The strong GE brand is also a rare resource that competitors cannot use in the market. Inimitability GE Healthcare has invested significant resources in developing technologies in healthcare. The company is also actively involved in protection of its innovations via legal channels. For instance, in 2011, GE spent $1.3 billion on R&D in healthcare. This means that it is relatively difficult for competitors to imitate such resources as patented or protected innovation and trade names. Non-substitutable GE healthcare innovations in equipments, services, software and digital technology in healthcare cannot be immediately substituted by a competitor. In line with Heinberg, et al (2017) contention, the company’s strong brand can also not be used by a competitor. This means that GE Healthcare competitive edge is in its unique innovations in the healthcare and its strong brand name in the world. 6 GE Healthcare strategic direction Strategic direction is a course of actions that a business can adopt that will ultimately lead to its achievement of its goals and objectives of its organizational strategy (Lawless, 2011). GE Healthcare needs to invest significantly in development of proprietary technology in magnetic resonance, computed tomography, ultrasound, life care solutions, and healthcare IT in order to protect its competitive advantage. Technological advancement in the healthcare sector is a major source of competitive advantage. The company may also have to increase its presence in the emerging markets to reduce its exposure to political and economic shocks in the U.S. and Europe. Asia, Africa and Americas are relatively unexploited markets that hold great potential for GE healthcare due to the growth in population and underdeveloped healthcare systems that need improvement. While such initiatives are important in improving the competitiveness of GE Health, it is important to sustain best practices such as the functional organizational structure and the relevant framework that outlines compliance to various laws and regulations across the world. Indeed, a focus on technological advancement, organizational efficiency, and growth in emerging markets will be the key sources of competitive edge for GE healthcare in the long-term. Conclusion From the literature and information analyzed thus far, it is evident that GE Healthcare is a valuable strategic business unit for General Electric Company as it accounted for 15% of the company’s revenue in 2016. The unit has a strong source of sustainable competitive advantage in its technological innovations and expertise in healthcare all over the world. Healthcare is emerging as a major spending area for government and private entities all over the world as people seek quality and reliable treatment solutions supported by new technologies. Demographic changes in developing world and growth in economic strength in emerging economies also present great opportunity for growth in healthcare sector. However, economic and political disruptions particularly in developed economies may have a negative impact on the demand for healthcare equipment and services by companies such as GE Healthcare. Going into the future, GE Healthcare will have to invest significantly in technological research and innovation to improve its equipments, systems and services to counter stiff competition in the industry. Such advancement will offer GE a unique source of competitive advantage in the market. 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