Critical strategic analysis of GE Power business unit in General Electric
Company
By
I Madzivanyika
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Contents
1.0 Introduction to the report.............................................................................................................1
1.1 Brief strategic position of the company.....................................................................................1
2.0 GE Resource Audit......................................................................................................................1
2.1 GE Value Systems.......................................................................................................................3
2.2 GE Product/Service portfolio (BCG Matrix)..............................................................................6
3.0 Potential future strategic growth.................................................................................................8
3.1 Growth options.........................................................................................................................8
3.2 Evaluation of options...............................................................................................................9
4.0 Recommendations.....................................................................................................................10
5.0 References..................................................................................................................................11
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1.0 Introduction to the report
General Electric (GE) Company is one of the biggest conglomerates with diversified
business portfolios with 8 segments having divested in other operations during the
tenure of two influential CEOs , Jack Welch from 1981 to 2001 and Jeff Immelt from
2001 to 2017 (Bufical 2009, p1, Byrne 1998). This report will focus on the critical
analysis of General Electric (GE) power as one of the business units within GE which
is star performer on GE corporate level with over 30% footprint in Power generation
sector globally. I will also analyse the legacy of the policies such as work out system,
boundaryless organisation, six sigma and digitization which are still in use at GE
today.
1.1 Brief strategic position of the company
GE is one of the biggest conglomerates operating in over 100 countries and has
been able to weather many storms since in inception in 1892 in USA. It has
continuously transformed itself under the guardianship of several CEOs. Of particular
interest is the transformation that has happened during the tenure of Jack Welch and
Jeff Immelt from 1981 to 2017 which has seen a radical change in policy into a more
flat organisation defying the one chain of command detects of classical management
theories by Fayol (Byrne 1998 p. 4; Grant 2001; Bufical 2009 p.4). Welch is also
credited for successful implementation of six sigma, performance management,
digitisation, information sharing through a boundaryless organisation, (Bufical, 2009
p.3; Grant, 2001 p.304).
The legacy of Welch and Immelt policies are still evident in the strategic position that
GE finds itself in currently. Conscious decision on digitisation has led to improvement
in customer focus improvement seen in the delivery of quality and efficient products
such as the GE H-class recovery steam generator attaining an unprecedented
efficiency over 62% in 2016 ( GE Annual Report 2016). Boundaryless organisation
allows information sharing in research and development which benefits the whole
business segments. Thermal coatings and 3D printing and the developments of
composite materials has enabled the organisation to attain high efficiency in steam
generators just as it has enabled the aviation segment to attain fuel efficiency of 15%
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in CM56 engines. As supported by Prahalad and Hamel (1990) the development of
human capital is important. This is evident in the R & D initiatives in materials
technology which has achieved organic growth the since the tenure of welch to date
(GE 10K Report, 2016 p.22; Bufical 2009 p. 7). Digitisation drive has led to the
development and improvement of internal knowledge as well as external support
services in fulfilling superior customer value of plant availability and reliability through
development of software such as Predix software at the heart of Asset Management
Performance (APM) used in the Power Segment and operations optimisation in the
steam and gas operations on capacity as well as efficiency data trending. The
globalisation drive has led to merger and acquisition of key assets such as Alstom
Thermal, Renewable and Grid Business as well as LM Wind in the GE Power
segment, key assets which has seen synergies totalling 1.6 billion in 2016 and
envisaged incremental growth in the steam powered plants and supply chain
capacity and flexibility of wind blades respectively (GE 10K Report, 2016 p8).
Six sigma strategies have seen the development of the H –class steam generator
with an unmatched efficiency over 62% in 2016 (GE Annual Report 2016).
Ecomagnation the strategy which came through during the tenure of Immelt was
supported by this achievement too. The organic growth strategy was to be supported
through market development and product development. Despite some mature
product such appliances and lighting products being retained in the Immelt period
they were strategically retained to sustain cash flows. (GE 2003). The growth focus
was to identify key assets which had the potential for future growth leading to the
Alstom and LM wind acquisitions and the synergies with Hitachi in the nuclear power
(GE Ecomagination Fact Sheet, Berzon 2008).
During the current tenure of John Flannery the corporate strategy for GE has
continued to a leaner and efficient organisation consolidating the policies made by
his predecessors. This is reflected in his stakeholder address that 20billion in assets
are going to be shade off in a year or two (GE 2017). This is a vertical integration
strategy which will ensure core assets are retained while non-performing assets are
divested.
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2.0 GE Resource Audit
Table 2.0 GE Power Internal Resource Audit Proforma
Resource Category GE Power Resources
Financial $52.7Billion Revenue
Resources
$16.8billion profit
Tangible Powering more than Powering more than 30% of
Resources Physical the world’s power
Resources ~1,600 GW installed capacity Expansive global
140 countries Equipping 90% of transmission
GE Power Employees: approximately 57,000
Human Global Research Center; ~530 compliance
Resources professionals and ~600 ombuds; designated
business Low employee turnover.
People growth strategy – learning & growth.
Approximately 36,000 technicians across
business and global research centers at the
Intangible Intellectual intersection of technology and industry.
Resources Capital R & D in composite materials which led to
efficiency in heat engines
Joint ventures with Hitachi and Toshiba for
nuclear plants
Global exchange of knowledge through GE Store
Organisational Organisationa
Knowledge sharing and access to technology,
Capability l Systems
markets and structure for deliver superior
customer value.
Technological Acquisition of Alstom’s Thermal, Renewables
Capabilities and Grid businesses in November 2015.
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Acquired LM Wind Power in 2016, H-class gas
turbine launch H-class Thermal coatings World’s
most efficient gas turbine & 3D printing gas
turbine at 62%+ efficiency. Predix Cloud
application software
Adapted from GE 10K Report 2016
Table 2.0: Adapted from GE 10K Report 2016
Source: GE_AR16
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Table 2.0 above shows the resource audit proforma for GE Power segment. As of
2016 the segment had a turnover of $52.7billion without putting into consideration
the proceeds from the Alstom (GE_10K Report 2016). The tangible assets acquired
are Alstom and LM Wind power to achieve backward integration of the two
acquisitions in the gas and wind turbine production respectively. Synergies in
Nuclear power have been made with Hitachi and Toshiba (p.8). The internal
capabilities are achieved through internal human resource development which allows
information, technology, and knowledge sharing amongst the SBUs through the GE
Store supported on Predix software.
2.1 GE Value Systems
Figure 2.1 Adapted from Sherman et al (2011, p.20)
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The value chain analysis describes the primary and support services activities that
take place in GE to deliver products and services to the customer. The primary
activities start from the inbound logistics to deliver the required raw materials needed
for the realisation of the product. Power serves power generation, industrial,
government and other customers worldwide with products and services related to
energy production and water reuse. The products and technologies harness
resources such as oil, gas, coal, diesel, nuclear and water to produce electric power
and include gas and steam turbines, full balance of plant, upgrade and service
solutions, as well as data-leveraging software. The operations are the designing of
power systems that utilise coal, gas, hydro, wind nuclear energies as sources of
power for electricity generation. The products are parcelled to the customers who are
majorly utility companies, independent power producers and governments.
Marketing and sales is done through the corporate GE Commercial Council headed
by Robert A. Mckeel.
The support services include training and development department under Research
and Development which is aimed at continuously developing shared knowledge for
the whole enterprises famously known as the “GE Store” a global platform for giving
and taking knowledge, technology and talent. This has seen the developments of
composite materials used in aviation and steam plants improving fuel efficiency and
machine efficiency in steam recovery steam generators. Predix improved internal
capability in APM an added superior customer offering in efficiency and machine
performance tracking. Digitisation service supports additive manufacturing process
and internal knowledge sharing capability (GE Annual Report, 2016 p. 3-15). The
boundaryless organisation gives a platform for information sharing across segments
which is mutually beneficial to many segments hosted on the Predix cloud internet
platform. Application of six sigma quality control is to manage a quality defect which
has seen the improvement organic growth and incremental growth in Mergers and
Acquisitions to support lean manufacturing drive. Examples include Alstom and LM
winds in GE Power segment. Procurement is done through the supply chain
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department to exploit economies of scale and manage the supplier relations. The
linkages are summarised by the table 2.1 below.
Table 2.1 GE Power Linkages
Type of Linkage Type of activity Example of Linkage
GE Global Research Center, GE
Primary -Primary
Store
Predix cloud –Asset Performance
Internal linkage Primary - Support management( APM ) , Culture
Compass, PeopleSoft, SAP
GE Global Research Center, GE
Support- Support
Store
Arcam AB and Concept Laser GmbH
for 3D printing, Meridium Inc. for
Vertical Integration enhancing and accelerating asset
performance management, LM
Wind Alstom
General Electric's Supplier
Specification and
Relationships Policy
checking
External Linkage GE’s Supplier Certification Program
Exelon, BP, Schindler, BNSF, Saudi
Total Quality
Aramco, Emirates Airlines, and
Management and
FedEx. J&J, GM, and Airbus after
Merchandising Activities
sales partnership
GE Capital Reconfiguration, NBC
Reconfigure Value chain Universal to reinvest in the energy
sector
Strategic Alliances Nuclear- Hitachi and Toshiba
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2.2 GE Product/Service portfolio (BCG Matrix)
Table 2.2 Extrapolated Growths and Market Share by SBU
REVENUES Growth rate( 3
2016 2015 2014 yr. average)
Market Share
Power $26,827 $21,490 $20,590 9.1% 18%
Renewable energy $9,033 $6,273 $6,399 12.1% 6%
Oil and Gas $12,898 $16,450 $19,085 -12.8% 12%
Aviation $26,261 $24,660 $23,990 3.0% 19%
Healthcare $18,291 $17,639 $18,299 0.0% 14%
Transportation $4,713 $5,933 $5,650 -5.7% 4%
Energy Connections &
$15,133 $16,351 $15,724 -1.3% 12%
lighting
Capital $10,905 $10,801 $11,320 -1.3%Power 8%
Renewab
le energy
high
Energy
Transportatio Connecti
n ons Oil and Aviation
Gas
Growth rate
Health
Capital care
low
low high
Market share
Figure 3.2 GE SBU BCG portfolio matrix
From the secondary data readily available GE has 8 strategic business units which
are summarised on table 2.2 above. The three year revenue inflows are tabulated on
the same table. The three year average growth rate has been calculated by taking
revenues is 2016 subtracting those in 2014 dividing by the revenues as at 2014. The
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market share has been calculated by dividing the total revenue for the SBU for the
period into the total revenue. The scatter plots of position of the SBUs are as shown
on figure 2.2 above.
GE Power occupies the star quadrant with high market share and high growth rate.
This is reflected in 30% global share of the power generation sector (WEF 2016;
Deloitte 2016; GE Investor Update 2017 p.37). It is the major revenue contributor of
application of GE Technologies. Vertical Integration to expand the industry has seen
it acquiring Alstom gas turbine business and selling the electrical signalling division
to Alstom. This has seen it having a cutting edge in the gas turbine business with
improvement in the efficiency of gas turbine to over 62% (GE Update 2017). The
position is dictated by the size, technology attractive, revenues. Aviation still remains
attractive with the improvement in fuel economy in the LEAP engine a success
hinged on development in additive manufacturing where key niche assets were
acquired. Health care is still a cash cow despite a low market growth. Ge capital has
slumped on the pack due to divestment in the capital business to concentrate in
capital finance for the business. Transportation despite contributing less to the
business remains important for cash flow and a major supplier to one of the biggest
locomotive manufacturers in General Motors. Renewable energy still remains a
business for the future. Globally the solar market has become flooded. Chinese
players contributing a bigger chunk due to the conscious decision made by the
Chinese government in renewable energy generation (WEF 2016) However with
environmentally sensitive governments, renewable energy still remains crucial for
company organic growth.
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3.0 Potential future strategic growth
Given the impact the supply has on impact on the standards of living, the supply of
power for the future hinges on satisfying the triple bottom line by fulfilling the social-
economic needs whilst not excessively impacting on the environment. (Deloitte, 2015
p.3; WOF, 2016 p.16). Whilst coal will remain the major fuel source contributing 30%
market share into the next decade the sustainable development route is to increase
the use of solar, hydro, wind, biogas and nuclear power. This has been envisaged by
the strategic growth initiatives such as acquiring of assets for the future like Alstom
and LM Wind turbines.
3.1 Growth options
The growth options in the power sector will be driven in the following areas; energy
demand, penetration of renewable energies, coal usage as an alternative cheap
solution to renewable energy, level of commitment to carbon dioxide emissions
reduction, nuclear power upgrading or decommissioning upgrading of ancient
transmission grid infrastructure (Deloitte 2016; WEF, 2016 p. 16). For GE Power this
will be through continual integration of Alstom and restructuring the Energy
Connections business; strategically reorganizing lighting to reduce costs and focus
on key markets such as BRIC countries and Mexico. On a positive note there is an
increasing demand for grid automation/software as a result of digitization &
modernization of grid infrastructure in developing economies. Public-private
partnerships have a role to play in plugging out the deficit of 1.2 billion people who
had no access to electricity in 2012 (WEF 2016 p. 11) means a big business
opportunity waiting to be exploited. Brazil, India and South Africa have enabled the
private sector participation in energy generation (p.20). Technological shift from
traditional lighting to energy saving LED is another growth opportunity with research
in this technology nearing its maturation will lead to lower prices for LED lights.
By continuing to strengthen the portfolio with the planned Baker Hughes
combination; building digital & additive manufacturing capability to drive leadership in
software & analytics and next-generation manufacturing; expanding margins &
returns through aggressive restructuring & other cost-out actions
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3.2 Evaluation of options
Though the above options represent a big growth potential there are some limitations
to the realisation of growth potential. In the European and North American
distribution market there is an estimated soft demand (Deloitte, 2016 p.20). The
volatility of the oil and gas environment creates challenging of its own due to
unstable oil prices driven by instability in the middle east, Nigeria and Libya global
players in the oil industry. Renewable sources such as wind and solar present
challenges because of seasonality so therefore need to be backed-up in the time of
outage. Apart from the limitations above, GE faces competition from other players in
the energy sector who are very capable in their areas of operations. Some of the
major competitors are Vestas Wind Systems A/S a leader in wind technology, Citi
Group Inc., Siemens AG, Hewlett-Packard, Mitsubishi Electric Corporation,
Schneider Electric, Honeywell International Inc. These are seasoned players with an
equally capable human capital base, established markets, resourceful and robust
supply chain (Sherman et al 2016 p.19; Enalls, 2014 p.50) Apart from competition
from these established players the company faces competition from mushrooming
small players, government legislation on promoting renewable energy use facilitating
their participation in the energy sector a trend observable in Brazil, India, South
Africa and Mexico where deliberate legislation has been put to support such players
(WEF 2016 p. 20; Deloitte, 2016). Failure to sustain competition would affect the
company’s market‐leading position and financial results adversely.
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4.0 Recommendations
These are the strategic alternatives I am recommending for GE:
Emerging market present a big market potential so investment in the transportation,
energy and health care in this market will be key to plug the gap on such basic
infrastructure. The continued financing of research and development will always give
the company a cutting edge. Vertical integration of technology will continue to bridge
the gap in supply chain loopholes which otherwise if unchecked will affect the supply
chain and affect critical process. GE should continue on the differentiation market to
continuously supply unique, robust products. Continual improvement in the steam
turbine industry will always be crucial for the reduction in carbon footprints from the
machinery sold by the company. Furthermore it will enhance brand perception in
today’s environmentally conscious world. Divestment of non-performing business will
always be the ideal path to eliminate profits bleed off. Non-performing assets should
be replaced by niche players for backward integration of the supply chain to
adequately and consistently supply quality raw materials. Key partnership in the
supply chain will ensure supply of key raw materials and developments in the
aviation and digitisation drive. Continuing on the path of meritocracy reward and
recognition of best performers, training and coaching of average performers and lay-
offs of non-performer and recruitment of new blood will adequately provide a
competent human resource base.
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