Strategic Management at General Electric - Case Study Example

STRATEGIC MANAGEMENT by Course Professor Institution City and state Date Strategic Management Corporation Identification Genral Electric (GE) is an international organization with product and service portfolios that span multiple business units. As such operations in varying industries and deal with distinct business encounters since the units within the enterprise vary. The company’s headquarters are in Boston. The company operates various business units in different segments and they include oil and gas, water and power, healthcare, transportation, aviation and capital. It is ranked among the top five largest corporations in the world (Ge.com. 2016). A corporation can be defined as an entity that meets particular legal requirements, which make it identifiable as having legal existence and as an entity that is independent from its owners (Goffee and Jones, 2001). In this respect, a corporation has the right to enter into contracts bound by law, it can lend or borrow money, it can be sued or it can sue, hire and fire, liable to paying taxes and own property among other rights. A product portfolio can be defined as the collection or assortment of all the products that are offered by a business entity. Wheelen and Hunger (2011) note product portfolio may comprise of different classes of products and line of products and such, management is required for all the categories of products in a product portfolio. On the other hand, a service portfolio is comprised of the entire set of services that are managed by a corporation (Barney, 2006). The purpose of management of service portfolio is to determine reasons for consumer interest in buying the corporation’s services, why the corporation is the best choice for the consumer, pricing structures and management of risks and priorities among other factors in the service sector. Corporate Research According to Prahalad and Hamel (2006), a business unit is a distinct and functional entity of a business that features its own business components. In large corporations such as GE, there are various specialized units that work towards specific objectives and projects. In the case of GE, the corporation has various business units, which include Oil & Gas, Healthcare, Power, Aviation, Transportation, Renewable Energy, Capital, Appliances & Lighting and Energy Management. According to Kachru (2009), a product line refers to a collection of relate products that exist under one brand and are sold by the same corporation. Comparatively, a service line is a group of all the services that are related to a specific division of a company (Carroll and Hannan, 2004). GE’s product line includes turbines, generators, refrigerator, water heaters, and locomotives among others. The service line includes real estate, financial services, surgical and molecular imaging, and electrical distribution among others. Corporation Revenue Centers Revenue for a company refers to the total amount of money that the business received for services they provided or for goods that have been sold in a given time period. The total amount that makes up the revenue of a company includes the entire net sales, interest and asset exchange. This amount is calculated before the subtractions of any expenses are done (Hitt et al., 2012). A revenue center, according to Reading (2002), is a distinctly recognizable unit of a corporation that produces and generates revenue for the entity through the services provided or goods sold. Notably, GE has several revenue centers in relation to the various business units. The various product and service lines of the company generate revenue for the company in varying degrees. However, the greatest revenue for GE comes from the Capital unit whose product and service lines include commercial lending and leasing, real estate, consumer, capital aviation services, energy financial services and corporate items and eliminations. This product and service line accounts for an estimated third of the corporations amalgamated revenues. External Environment Analysis Zahra (2003) defines a corporation’s operation environment as entailing the mix of external and internal factors that have an influence on the organization’s operations, functions, and processes. Various aspects influence the operating environment and such factors that take place outside the corporation are known as external factors and they affect the key internal functions of the entity. Social environment constitutes the manner in which consumers and the community behave, including their attitudes and beliefs. Legal environment is concerned with how laws and regulations or legislations affect the corporation’s business. Economic environment points to the effects of the economy on the business. Political environment is concerned with government policies that may affect the corporation’s business such as government subsidies. Technological environment is concerned with any changes and advancements in technology that may affect the business and the changes in innovation and production processes. Environmental concept is related to issues in the global environment and how they can affect a business such as climate change and migration among others (Barney, 1997). PESTEL analysis Political Being a multinational corporation, every business unit of GE has to deal with the various political systems in the numerous countries they operate in. Different countries have distinct political environments that affect these business units. For instance, government policies and interventions in the Western countries where each of these units operates are minimal and allow for business progress. However, countries like China feature tight controls and the influence of the government over business is very high and thus has negative effects on the corporation’s business units. Economic Each business unit under GE is affected by the global fluctuations of exchange rates, interest rates and currency value. In this respect, inflation and deflation affect the operating environment of these business units. In other countries such as third world countries, government spending has a major influence on business aspects like profitability and production. Social The social environment is a major influence in the operating environment of GE’s business units. Culture, attitudes, customs, religion, and norms dictate the manner in which these business units conduct themselves in specific countries. In this respect, the units have to adapt to the various cultures and cultural challenges they may face. For instance, culture in every country influence business practices such as working hours, working days and the type of services and goods to be offered by the business unit. Environmental With global concern for the environment, every business unit has to comply with environmental regulations of the various countries in which they operate. For instance, the Oil and Gas unit of the corporation has invested in billions in order to improve on processes like drilling so as to protect the environment. Legal The corporation’s involvement in close to 200 countries has implications on the legal operating environment of every business unit. In this respect, every business unit integrates compliance in every single aspect of their operations and processes in relation to the various countries they operate in in order to operate within the confines of law in every country. Source of Sustainable Competitive Advantage An organization gains sustainable competitive advantage through the acquisition of attributes that allow for high level performance than competitors in the industry. David and David (2016) explain that the four factors of competitive advantage include valuable, rare, non-replaceable, and imperfectly imitable resources. Valuable resources allow an organization to increase its effectiveness and efficiency. Rare resources are those that are not easily accessible to the competition, non-replaceable resources refer to valuable resources that cannot be replaced by another resource to give similar value and imperfectly imitable resources refer to those that are tremendously hard to duplicate and costly. The sources of sustainable competitive advantage for each business unit of GE are varied and as such, they enable these units to have an edge of competitors in their various industries. Capital unit’s source of competitive advantage includes diversification (Eckes, 2001). This business unit offers a wide range of financial services and products for businesses around the world. In this way, they have ensured that they have a wide range of services under the brand and as such, consumers find all their financing needs under one umbrella. The Aviation and Healthcare units share a similar source of sustainable competitive advantage, which is superior product and niche market. Energy Management unit gets its competitive advantage from innovation and technology. The unit’s processes are constantly looking into better and more efficient ways in energy management. They not only design technologies of energy management but also install technologies for energy conversion, automation and optimization. The Appliances & Lighting unit gains sustainable competitive advantage through low cost and high production. The unit’s capacity for high volume production and low cost gives it a sustainable competitive advantage through a reduction of the margins of profit which are then covered through high volume sales. Business Level Strategy Strategic direction refers to the course of action undertaken in order to lead an organization into achieving its objectives and goals (Carpenter and Sanders, 2006). The actions entailed in strategic direction are meant to result in success. An organization needs to have a clear direction in its strategic management if it is to achieve its strategic objectives. GE as Multinational Corporation may benefit from some recommendations for its future strategic direction. Seeing that the corporation has a presence in over one hundred countries and has a number of business units in almost every major industry, it would further benefit the company to continue with its growth an expansion strategy. The corporation should aim to establish a presence in almost all if not all countries in the world to further establish their position as a global powerhouse. The company could also benefit by venturing into the food industry which as a fast moving industry. The availability of capital and global presence will further give them a competitive edge and make entry into the industry easy. The concept is to make the corporation have presence in all the major segments in the global industry and market. References Barney, J., 2006. Firm resources and sustained competitive advantage. Journal of management, 17(1), pp.99-120. Barney, J.B., 1997. Gaining and sustaining competitive advantage (pp. 134-175). Reading, MA: Addison-Wesley. Carpenter, M.A. and Sanders, W.G., 2006. Strategic management: a dynamic perspective, concepts and cases. Carroll, G. & Hannan, M., 2004. The demography of corporations and industries. Princeton, N.J. Woodstock: Princeton University Press. David, F. and David, F.R., 2016. Strategic Management: A Competitive Advantage Approach, Concepts and Cases. Dividend.com. (2016). How Does General Electric Make Money? (GE). [online] Available at: http://www.dividend.com/how-to-invest/how-does-general-electric-make-money-ge/ [Accessed 21 Aug. 2016]. Eckes, G., 2001. The six sigma revolution : how General Electric and others turned process into profits. New York: John Wiley Ge.com. (2016). GE.com | imagination at work. [online] Available at: http://www.ge.com/ [Accessed 21 Aug. 2016]. Goffee, R. and Jones, G., 2001. The character of a corporation: How your company's culture can make or break your business. HarperBusiness. Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2012. Strategic management cases: competitiveness and globalization. Cengage Learning. Kachru, U., 2009. Strategic management: Concepts and cases. Excel Books India. Prahalad, C.K. and Hamel, G., 2006. The core competence of the corporation. In Strategische unternehmungsplanung—strategische unternehmungsführung (pp. 275-292). Springer Berlin Heidelberg. Reading, C., 2002. Strategic business planning : a dynamic system for improving performance & competitive advantage. London: Kogan Page. Wheelen, T.L. and Hunger, J.D., 2011. Concepts in strategic management and business policy. Pearson Education India. Zahra, S.A., 2003. Environment, corporate entrepreneurship, and financial performance: A taxonomic approach. Journal of business venturing, 8(4), pp.319-340. Read More