Case 5: General Electric ;

ENERAL LECTRIC S ORPORATE TRATEGY

Like the premature obituary of writer Mark Twain, reports of the death of the conglomerate are often

exaggerated. Diversified companies, straddling multiple industries, or even just dijferent parts of one

large sector, remain a dominant, if not always fashionable, feature of stock markets from the US.

to continental Europe and Asia. But a new backlash against conglomerates suggests that a more

lasting shift in investor preferences may be taking place-driven in part by the growing influence of

hedge funds and private equity houses. In public markets, big has rarely appeared less beautiful. 1
Through the 199os and 20oos, large diversified firms, often called conglomerates, largely fell out of favor with
investors. Arguments against conglomerates ranged from complexity in management to the difficulties that
analysts and investors had in understanding their operations. More recently, conglomerates have regained some
respect. As the largest of the US. diversified multinational firms, General Electric Company (GE), with over
300,000 employees, generated a variety of opinions, such as:

Increasingly restive General Electric Co. shareholders, frustrated with six years of meager returns,

are pressuring Chairman Jejfrey Immelt to break up the conglomerate. But some shareholders and

analysts argue that GE s sprawling businesses are better Ojf together than apart. GE s big umbrella,

these investors say, can balance dijfering product and economic cycles, while helping all its busi-

nesses financially. And that would boost the stock price over the longer term.

“T he main appeal of GE is its diversification, ”says Mark Demos, portfolio manager at Fifth Third

Asset Management, which owns 12.6 million GE shares. He says this isn’t the time to break up the

company, because global economic trends and investor sentiment are moving toward bigger more

international companies such as GE.2
GE’s Background
GE’s roots go back to 1890 when Thomas Edison established Edison General Electric Company. In 1892,
Edison General Electric Company merged with Thomson-Houston Company. The new company was called
General Electric Company. Several of Edison’s early products were still part of GE in 2008, including lighting,
transportation, industrial products, power transmission, and medical equipment. GE is the only company listed
in the Dow Jones Industrial Index today that was also included in the original index in 1896.

Over the century after its founding, GE made hundreds of acquisitions and expanded far beyond its original
businesses. By 1980, GE products ranged from plastics, consumer electronics, and nuclear reactors, to jet engines.
In 1981, Jack Welch became CEO and radically restructured the company. Welch urged his employees to be
“better than the best” and challenged each of the diverse GE businesses to be the number one or number two
competitor or disengage. Between 1981 and 1990, GE divested more than 200 businesses and made over 370
acquisitions. Acquisitions included NBC, Kidder Peabody, Thomson/CGR medical equipment, Borg-Warner
Chemicals, Penske Leasing, Tungsram light bulbs, and Polaris aircraft leasing. Businesses sold included small
appliances, consumer electronics, RCA Records, outdoor lawn equipment, oil exploration and refining, car
auctions, and mining. Welch also slashed layers of management and began a series of internal initiatives, many
of which set the standard for business practice around the world, such as Six Sigma. In 1980, the year before
Welch became CEO, GE recorded revenue of $26.8 billion; in 2000, the year before Welch retired, revenue was
nearly $130 billion.

C. Inkpen with research assistance from Ms Edens and Siva Palli for the purpose of classroom discussion only, and not to indicate
either efifective or inefiieetive management.
This document is authorized for use only by Wing Yiu Li in Seminar in Business Policy and Strategic Management-1 taught by Maria Radoslavova, San Francisco State University from July
2015 to August 2015.

Download
Google Translate
Bing Translator
Edit Online

For the exclusive use of W. Li, 2015.

TB0383

Andrew C. Inkpen

General Electric’s Corporate Strategy
Like the premature obituary of writer Mark Twain, reports of the death of the conglomerate are often
exaggerated. Diversified companies, straddling multiple industries, or even just different parts of one
large sector, remain a dominant, if not always fashionable, feature of stock markets from the U.S.
to continental Europe and Asia. But a new backlash against conglomerates suggests that a more
lasting shift in investor preferences may be taking place—driven in part by the growing influence of
hedge funds and private equity houses. In public markets, big has rarely appeared less beautiful.1

Through the 1990s and 2000s, large diversified firms, often called conglomerates, largely fell out of favor with
investors. Arguments against conglomerates ranged from complexity in management to the difficulties that
analysts and investors had in understanding their operations. More recently, conglomerates have regained some
respect. As the largest of the U.S. diversified multinational firms, General Electric Company (GE), with over
300,000 employees, generated a variety of opinions, such as:
Increasingly restive General Electric Co. shareholders, frustrated with six years of meager returns,
are pressuring Chairman Jeffrey Immelt to break up the conglomerate. But some shareholders and
analysts argue that GE’s sprawling businesses are better off together than apart. GE’s big umbrella,
these investors say, can balance differing product and economic cycles, while helping all its businesses financially. And that would boost the stock price over the longer term.
“The main appeal of GE is its diversification,” says Mark Demos, portfolio manager at Fifth Third
Asset Management, which owns 12.6 million GE shares. He says this isn’t the time to break up the
company, because global economic trends and investor sentiment are moving toward bigger, more
international companies such as GE.2

GE’s Background
GE’s roots go back to 1890 when Thomas Edison established Edison General Electric Company. In 1892,
Edison General Electric Company merged with Thomson-Houston Company. The new company was called
General Electric Company. Several of Edison’s early products were still part of GE in 2008, including lighting,
transportation, industrial products, power transmission, and medical equipment. GE is the only company listed
in the Dow Jones Industrial Index today that was also included in the original index in 1896.
Over the century after its founding, GE made hundreds of acquisitions and expanded far beyond its original
businesses. By 1980, GE products ranged from plastics, consumer electronics, and nuclear reactors, to jet engines.
In 1981, Jack Welch became CEO and radically restructured the company. Welch urged his employees to be
“better than the best” and challenged each of the diverse GE businesses to be the number one or number two
competitor or disengage. Between 1981 and 1990, GE divested more than 200 businesses and made over 370
acquisitions. Acquisitions included NBC, Kidder Peabody, Thomson/CGR medical equipment, Borg-Warner
Chemicals, Penske Leasing, Tungsram light bulbs, and Polaris aircraft leasing. Businesses sold included small
appliances, consumer electronics, RCA Records, outdoor lawn equipment, oil exploration and refining, car
auctions, and mining. Welch also slashed layers of management and began a series of internal initiatives, many
of which set the standard for business practice around the world, such as Six Sigma. In 1980, the year before
Welch became CEO, GE recorded revenue of $26.8 billion; in 2000, the year before Welch retired, revenue was
nearly $130 billion.
Copyright © 2014 Thunderbird School of Global Management. All rights reserved. This case was prepared by Professor Andrew
C. Inkpen with research assistance from Wes Edens and Siva Palli for the purpose of classroom discussion only, and not to indicate
either effective or ineffective management.

This document is authorized for use only by Wing Yiu Li in Seminar in Business Policy and Strategic Management-1 taught by Maria Radoslavova, San Francisco State University from July
2015 to August 2015.

For the exclusive use of W. Li, 2015.

In 2001, Jeff Immelt became CEO and was still in the job in 2014. According to Immelt, the job of the
CEO is to “pick initiatives and businesses to get involved in, shape the company culture, pick great people.
Strategy is about the creation and allocation of right resources, to the right place, in the right way over time.
Whether you call it allocating capital resources or picking the initiatives and businesses to get involved in, the
heart of strategy is choices around where you want to play and how you want to win over whatever timeframe
is important to you.”3
Among Immelt’s early goals were to strengthen GE’s global presence and create a more collaborative culture.
Under Immelt, GE sold its insurance and plastics businesses, and its entertainment business, NBC Universal,
and strengthened its presence in healthcare, financial services, and oil and gas. In 2014, GE was actively trying
to sell its appliance business, one of the last of GE’s BTC businesses.

GE’s Strategy
GE organized its operations in seven main businesses: power and water, oil and gas, energy management, aviation, healthcare, transportation, home and business solutions, and GE Capital. Exhibit 1 provides a summary of
each of the businesses. The exhibit shows that each of the businesses employed tens of thousands of employees
and was a highly diversified business in its own right. If spun off from GE, the businesses would be among the
largest and most profitable companies in their respective sectors.
Given the diversity of businesses, what was the strategic logic that held the company together? The CEO’s
letter to the shareholders in the 2003 Annual Report stated:
We are another year along with our five-initiative strategy to create high-margin, capital-efficient
growth:
•     Technical Leadership: Technology and innovation are at the heart of our initiatives. Technical
leadership produces high-margin products, wins competitive battles, and creates new markets.
•     Services: Technical leadership has created a massive installed base of more than 100,000 longlived GE jet engines, power turbines, locomotives, and medical devices for which we can provide
high-margin services for decades.
•     Customer Focus: One of our successes is in “vertical selling,” the practice of aligning our offerings in four industries that are critical to GE: healthcare, energy, transportation, and retail.
They represent $47 billion of industrial revenues and $169 billion of financial services assets. GE
brings a unique array of capabilities to these industries, including products, services, information,
and financing. On this broad foundation, we can build deeper partnerships with our customers.
•     Globalization: We can take every growth idea and multiply its effectiveness through globalization. Globalization is a GE core competency. We have made and sold products outside the U.S.
for 100 years, and one-third of our leadership team is global. Our global revenues were almost
$61 billion in 2003, up 14%, and should grow 15% in 2004. We succeed because we recognize
one central fact: global growth requires more than simply shipping products. You must be equally
committed to developing capabilities and relationships in the markets where you want to succeed.
•     Growth Platforms: A key GE strength is our ability to conceptualize the future, identify “unstoppable” trends and develop new ways to grow….We follow a disciplined process for growth. First,
we segment broad markets and launch with a small platform acquisition. Then we transform the
business model using our growth initiatives, such as services and globalization. Finally, we apply
our financial strength to invest in organic growth or acquisitions. We can get big quickly while
generating solid returns.

The CEO’s letter to the shareholders in the 2006 Annual Report included:
Our strategies create strengths and capabilities, which, in turn, drive competitive advantage. The
consistent execution of the same strategic principles year after year provides the foundation to invest
and deliver.
We expect them [the businesses] to be industry leaders in market share, value, and profitability. We
want businesses where we can bring the totality of the Company—products, services, information,
and financing—to capitalize on the growth trends I mentioned earlier. We run these businesses with
common finance and human resource processes. We have one leadership development foundation
2    TB0383
This document is authorized for use only by Wing Yiu Li in Seminar in Business Policy and Strategic Management-1 taught by Maria Radoslavova, San Francisco State University from July
2015 to August 2015.

For the exclusive use of W. Li, 2015.

and one global research infrastructure to achieve excellent results with a common culture. We have
a few Company-wide Councils, like Services, so we can share ideas with minimum bureaucracy…
when we find that a business cannot meet our financial goals or could be run better outside GE, we
will exit that business rather than erode shareowner value.
Our “average hold” of a business is measured in decades. We do not “flip” assets. We are builders
of businesses. This takes people who believe in teamwork and have pride in workmanship. We have
a team that is focused on building a company that has enduring value and makes the world a better
place. Our culture matches the expectations of long-term investors.

In 2008, GE described itself as a reliable growth company. At GE’s Annual Leadership Meeting in early
2008, Jeff Immelt described four strategic principles to achieve growth:
1.     Invest in Leadership Businesses: We have spent the last six years assembling a portfolio to
drive growth in today’s more interconnected global economy. We will continue to refine the mix
to capture market opportunities that ensure our portfolio keeps generating faster growth, has
more balance, and creates a stronger competitive advantage. In 2008, we will continue to drive
results from our Growth as a Process initiative by:
•
•
•
•
•

Sustaining technical leadership
Accelerating globalization
Driving services growth
Bringing lean and enterprise to customers
Building adjacencies to the installed base

2.     Execution and Financial Discipline: This year we are formalizing a process around operational
excellence that will help us to grow margins and returns in a tough environment. Our process
is being led by a new Operating Council and shared metrics to measure results.
3.     Growth as a Process: Our focus on Growth as a Process continues to enable us to deliver organic revenue growth of 2-3x GDP. Our process is accelerating, it’s visible, and it creates high
confidence for investors. In 2006 and 2007, we achieved 9% organic revenue growth and, in
2008, we expect to maintain this level of growth.
4.     Great People: GE has always attracted great talent. Converting talent into a strategic advantage
means developing and retaining that talent so that we have the best leadership team. In 2008,
we will do this by focusing on core capabilities of LIG [Leadership Innovation and Growth],
accessing local knowledge for global growth, and leveraging our deep expertise.

In recent years, GE talked more about organic growth. According to Jeff Immelt:
The focus on organic growth is also going to require people to stay in the same jobs longer. You
can’t plant a tree and see it grow in a year. This is very countercultural in an organization where
building a career has always meant packing your bags every 18 months. Going forward, you’re still
going to have some 18-month jobs, but over the course of 30 years, you’re going to have more jobs
that last five years.4

In 2012, GE said its strategy was based on five pillars: technological leadership, services acceleration, enduring customer relationships, resource allocation, and globalization.5 Immelt described the company as a winning
company because of its ability to create its own future. In his own words:
It starts with a culture—the foundation for any successful enterprise—a culture that inspires our
people to improve every day. Our team is mission-based: We build, move, power, and cure the world.
We constantly learn from our customers, our competitors, and from each other. Strategy is not set
through one act or one deal. Rather, we build it sequentially through making decisions and enhancing
capability. As we look forward, it is more important that investors see the company through a set of
choices we make for the purpose of creating value over time.

TB0383    3
This document is authorized for use only by Wing Yiu Li in Seminar in Business Policy and Strategic Management-1 taught by Maria Radoslavova, San Francisco State University from July
2015 to August 2015.

For the exclusive use of W. Li, 2015.

In the letter to shareholders, Immelt described five strategies for growth (see Figure 1):
First, we have remade GE as an “infrastructure leader” with a smaller financial services division.
About $60 trillion of infrastructure investment is needed by 2030 to support billions of new consumers
joining the middle class in the emerging world, and to support developed-market productivity. Over
the last decade, we have grown our infrastructure platforms by investing in adjacencies, pursuing
opportunities that are closely related to the core. About one-third of our infrastructure revenues
comes from businesses we weren’t in a decade ago. These include fast-growth businesses like Oil and
Gas, Life Sciences, and Distributed Power. This growth has come through organic investment and
focused acquisitions. At the same time, we are creating a smaller, more focused financial services
company—one that has a lower risk profile and adds value to our industrial businesses. Our goal is
to have infrastructure earnings reach 70% of our total over time.
Second, we are committed to allocating capital in a balanced and disciplined way, but with a clear
priority for dividend growth. GE will generate $100 billion for allocation over the last few years,
including cash from existing operations, dividends from GE capital and dispositions. The top priority
remains growing the dividend. Since 2000, we have paid out $106 billion in dividends, more than
any other company. We like GE to have a high dividend yield, which is appealing to a majority of
our investors.
Third, we have significantly increased investment in organic growth, focusing on R&D and global
expansion. We believe that investing in technology and globalization is key to gaining market share.
Annually, we invest more than $10 billion to launch new products and build global capability. We use
the entire GE enterprise to improve the value of our investments in technology and globalization. For
technology, we have a “Global Research Center Network” that builds strategic capability, spreads
technology around the world, and innovates for local markets.
Fourth, we have built deep customer relationships, based on an outcome-oriented model. Our
goal is aligned with customer outcomes, and our products improve their productivity. We believe in
a solutions-oriented selling model, one that can deliver outcomes for customers. We only win when
customers win.
Fifth and finally, we have positioned GE to lead in the big productivity drivers of this era. This is
important for growing our margins while keeping our customers competitive. The levers of productivity are constantly changing. For more than a century, GE has been a leader in productivity and
innovation.6

GE’s Acquisition Strategy
Acquisitions and divestitures played a key role in GE’s corporate strategy. Exhibits 2 and 3 show GE’s main
acquisitions and divestitures over the past few decades. GE exited all or most of its insurance, materials, equipment services, entertainment, and industrial platforms. GE also exited its U.S. mortgage origination business
and its personal loan business in Japan. In 2007, GE sold its chemicals business because of “rampant inflation
in raw material costs.” In 2014, GE announced that it would divest its consumer credit business in an IPO that
valued the business at about $20 billion.
Over the same time period, GE acquired many new businesses. GE investments resulted in one of the
largest renewable-energy businesses in the world. GE diversified its healthcare business by investing in life sciences and healthcare IT. GE created a new high-tech industrial business called Enterprise Solutions and made
several investments in financial services businesses in global markets. GE acquired Vetco Gray, a company that
produced products for the upstream oil and gas industry. In 2014, GE acquired the French engineering company
Alstom for $17 billion.
Not all of GE’s acquisitions were successful. It was widely acknowledged that the acquisition of brokerage
firm Kidder Peabody in the mid-1980s was a huge failure. The system of individual risk-taking and incentive
compensation at Kidder Peabody never meshed with GE’s culture and values. Many questions were also raised
when GE created NBC Universal in 2003 via the 80% acquisition of Vivendi’s film and television unit, which
included Universal Studios and theme parks. Universal had gone through several M&A deals before the GE
acquisition. In 1990, the large Japanese electronics company Matsushita acquired MCA, Universal’s parent, for
4    TB0383
This document is authorized for use only by Wing Yiu Li in Seminar in Business Policy and Strategic Management-1 taught by Maria Radoslavova, San Francisco State University from July
2015 to August 2015.

For the exclusive use of W. Li, 2015.

Figure 1. GE Growth Strategy: A Six-Part Process

Source: T. A. Stewart, “Growth as a Process: The HBR Interview Jeffrey R. Immelt,” Harvard Business Review, June 2006, pp.
60-70.

$6.59 billion. In 1995, the Canadian spirits company Seagram acquired 80% of MCA from Matsushita for $5.7
billion. In 2000, Vivendi Group acquired Seagram. At the time of the deal, many pundits raised questions. For
example, The Wall Street Journal wrote, “The strategic elements of the deal are harder for GE to justify. The media
business is far more competitive than other industries in which GE can use its financial heft and strong brand
name to squash the competition. GE executives have said they had no interest in owning a movie studio, with
its unpredictable earnings and difficult personalities.”7 NBC Universal was divested in 2012, and Immelt said,
“When we looked at NBC, we made the transition from network to cable and the next transition was Internet
and I didn’t want to make that transition as I didn’t think we were particularly skilled in that. I wasn’t sure if we
are positioned to play that game”8
In his 2012 letter to the shareowners, Jeffery Immelt wrote: “We will continue to execute on focused acquisitions, a capital efficient way to grow the company. We will keep our focus on acquiring specific capabilities
where GE can add substantial value.”

TB0383    5
This document is authorized for use only by Wing Yiu Li in Seminar in Business Policy and Strategic Management-1 taught by Maria Radoslavova, San Francisco State University from July
2015 to August 2015.

For the exclusive use of W. Li, 2015.

GE’s Culture and Values
GE’s corporate values can be found in corporate statements that identify the traits that should be embodied by
leaders. Table 1 shows an example of a GE value statement during Jack Welch’s tenure as CEO.
Table 1. GE Value Statement
GE Leaders—always with unyielding integrity:
•     Have a passion for excellence and hate bureaucracy
•     Are open to ideas from anywhere, and committed to work out
•     Live quality and drive cost and speed for competitive advantage
•     Have the self-confidence to involve everyone, and behave in a boundaryless fashion
•     Create a clear, simple, reality-based vision, and communicate it to all constituencies
•     Have enormous energy and the ability to energize others
•     Stretch, set aggressive goals, and reward progress, yet understand accountability and commitment
•     See change as opportunity, not threat
•     Have global brains, and build diverse and global teams

Table 2 shows a more recent statement of values and actions.
Table 2. GE Values Card

GE evaluated its leaders based on various traits. According to Jeff Immelt:
By the end of 2004, we came up with five growth traits. The first is external focus. Then there’s
imagination and creativity. And a growth leader must be especially decisive and capable of clear
thinking. Inclusiveness is also vital. Finally, leaders in these high-growth companies tend to have
deep domain expertise.9

Table 3 provides more detail on the growth traits. For each growth trait, there were measurable behaviors
that represented “outstanding” and “needs improvement.” For example, for clear thinking, “Confident in standup skills…without the PowerPoint” was an outstanding behavior. “Getting bogged down in details” was evidence
of a need for improvement. GE used these behaviors to evaluate its leaders and managers.
A few years ago, GE leadership asked whether the above growth traits were still the right values. GE looked
outside the company by having its senior executives meet with leaders from more than 100 organizations, including large multinationals, universities, and small start-ups in emerging markets. The conclusion was that the five
growth values were still relevant for GE.
6    TB0383
This document is authorized for use only by Wing Yiu Li in Seminar in Business Policy and Strategic Management-1 taught by Maria Radoslavova, San Francisco State University from July
2015 to August 2015.

For the exclusive use of W. Li, 2015.

Table 3. GE Individual Growth Traits
External Focus
•     Defines success in market/industry terms…understands customer needs, marketplace dynamics, industry trends, and
the competitive landscape in your industry or function
•     Considers the external impact of business activities and decisions on customers, market/industry, investors, media,
government, and communities
•     Anticipates customer needs and ensures that they are met…measures processes and performance through the customer’s
eyes
•     Stays current with industry trends, including market intelligence and competitive analysis, and takes an active role in
shaping their industry and/or function
•     Takes action to enhance GE’s reputation among all stakeholders…represents the Company well
Clear Thinking
•     Simplifies strategy into specific actions, makes decisions, and communicates priorities
•     Has strategic capacity to sift through complex information and focus on the critical few priorities
•     Communicates messages clearly and concisely
•     Able to translate strategy into business objectives with clear accountability
•     Decisive…able to make decisions with speed and accuracy…based on best available information
•     Is accountable for organic growth and frees up resources to fund innovation
•     Reality…ability to bring reality to situations to identify gaps between perception and facts
Imagination and Courage
•     Has the imagination to take risks on both people and ideas…bold thinking to imagine a better way and the courage
to make it a reality
•     Generates new and unique ideas…makes fresh connections; an original thinker
•     Courage to take action on ideas…fights for growth, both internally and externally
•     Supports an environment in which people can take risks, consistent with integrity, and experiment
•     Brings creative ideas to fruition…good instincts about which ideas will work and when
•     Viewed as an advocate of innovation…pushes for “big bets” to accelerate our competitive advantage
Inclusiveness
•     Can energize teams through inclusiveness and connection with people…builds loyalty and commitment
•     Creates an engaging work environment…appeals to the unique interests of each team member
•     Builds a connection with the team through personal involvement and trust…inspires people to want to perform at a
higher level
•     Promotes an environment that recognizes and celebrates individual and cultural differences
•     Develops others…provides others with feedback and coaching…encourages personal growth
Expertise
•     Has the confidence and perspective that comes through depth in industry/function to impact growth
•     Learns from living with the impact of their decisions and actions
•     Has demonstrated leadership throughout different business cycles
•     Gains perspective through varied experiences and build-up of skills
•     Continually strives to increase knowledge with up-to-date information

Comments on GE Culture
Dennis Dammerman, former GE Vice Chairman and CFO, made the following comments about how the GE
culture evolved during Jack Welch’s tenure:10
Eventually, the businesses began to get flatter and flatter, with some interesting phenomena as byproducts. For one, a whole new type of leader became necessary. One could no longer be a colorless, impersonal autocrat, a technician who could manipulate the management structure to produce
results. The structure was gone. The leader now had to emerge from the corner office, and excite
teams—energize them, lead them rather than manage them. Not everyone was capable of doing that.
Many stumbled for a while and retired or otherwise departed. Some adapted amazingly well and
became excited and younger in their new role. The bureaucrats, many at significant pay levels, had
a bad time of it. The kitchen light came on, and suddenly there were no longer the pipes and cabinets
of bureaucracy to hide under. They left by the battalions.
TB0383    7
This document is authorized for use only by Wing Yiu Li in Seminar in Business Policy and Strategic Management-1 taught by Maria Radoslavova, San Francisco State University from July
2015 to August 2015.

For the exclusive use of W. Li, 2015.

The phenomenon that best captures the sharing, learning, cooperative atmos