978-1259913747 General Electric After GE Capital Case

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Structure of the Case

ing what Immelt should do with the cash generated from the sale of GE Capital.

The history of General Electric can be traced to 1883 and Charles Coffin who formed present-day

General Electric through a merger in 1892. Under Coffin, GE began to sell electrical products that

increased demand for its core generator business creating a portfolio of businesses that continues to

define GE today. Coffin was succeeded by Owen Young who formed GE Credit Corporation in 1932,

making into segments that were easier to manage. Fred Borch, GE’s next leader, redefined marketing

by designing products around customer needs, leading GE into new areas. Borch also divested GE’s

computer unit to Honeywell, a move that highlighted the management skills of Reginald Jones who

succeeded Borch as leader of GE. Under these successor leaders of GE, the firm’s income and revenues,

as well as the number of products GE made, grew significantly.

GE’s balance sheet. Some of these acquisitions are being undone by Immelt. For example, his first major

divestiture was in 2004, when he sold GE’s insurance business for $6.8 billion. Immelt also sold GE

plastics in 2007 and NBC Universal in 2003. Meanwhile, Immelt also acquired Enron Wind for $400 mil-

lion in 2002 and the energy business of France’s Alstom in 2014. The largest acquisition in GE’s history

General Electric after GE Capital

TEACHING NOTE

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Teaching Note — General Electric after GE Capital

at $13.5 billion, it signaled a shift of GE to be a more international company. Immelt has also focused on

“reverse innovation” to provide technical solutions in unmet markets, as well as the Industrial Internet

to improve firm operations. However, the environment Immelt faced has been tumultuous, including

the 2008 financial crisis, the 9/11 terrorist attacks, hurricanes, and tsunamis.

Suggested Answers

AnAlysis: Focus on ExtErnAl And/or intErnAl EnvironmEnts

1. Jeff Immelt became CEO and chairman of GE on September 7, 2001. Analyze GE’s external

environment since 2001 using PESTEL and discuss the effects these changes have had on GE. Is

Immelt responsible for GE’s poor performance?

During Immelt’s leadership of GE a series of external environmental events have created significant

challenges. This question leads students to consider how much control senior management has over

firm performance under conditions of environmental uncertainty.

sociocultural—While not mentioned specifically in the case, sociocultural attitudes toward the envi-

ronment and affordable health care clearly influenced Immelt’s decisions to move into wind energy.

Additionally, international demographic trends point to a growing need for health care in developing

economies reflecting GE’s development of less expensive ultrasound machines.

technological—Students will be tempted to list GE’s own innovations under this heading, which

provides an opportunity to remind them of the proper framing of a PESTEL analysis. However, the

focus of PESTEL is on external environmental forces that have an impact on industries and the firms

legal—Legal issues are not directly covered in the case. However, students likely will be famil-

iar with the Homeland Security Act and other legislation passed in the wake of 9/11, as well as the

Sarbanes-Oxley legislation in 2002 and regulatory changes following the 2008 financial crisis, such as

the Dodd-Frank Act that changed the legal environment for firms. GE’s health care division is also

being effected by the 2010 Affordable Care Act.

Teaching Note — General Electric after GE Capital

of McGraw-Hill Education.

In considering whether Immelt is responsible for GE’s recent poor performance, the significant

drops in GE’s stock price correlate with the 2008 global financial crisis (see Case Exhibit 1B). This also

underscores the impact of external events on firms. Still, GE’s recovery has lagged the overall market,

and it is unrealistic to continue to blame an event over five years in the past for GE’s problems when

the overall market has recovered. This highlights the need for additional changes at GE.

Following a discussion of the different PESTEL elements and Immelt’s responsibility, an interesting

debate to host in class is whether Immelt has selected the best trends on which to stake GE’s future.

Students will likely have varying opinions, but challenge them to examine why they agree or disagree

with Immelt’s selections and to support their viewpoint with research data.

FormulAtion: Focus on BusinEss, corporAtE,

And/or GloBAl strAtEGy

2. What is GE’s current level of diversification? Historically, has GE been becoming more or less

diversified? Why has GE been moving in this direction?

NOTE: GE’s changing product and geographic scope is provided in Case Exhibits 2A and 2B.

Historically, GE became more diversified under successive chairmen and CEOs leading GE into new

businesses. This continued with some divestment (computer business to Honeywell) until Jack Welch

who significantly reorganized GE and increased the role of GE Capital to be 45 percent of GE by 2001.

While the changes under Immelt have decreased the amount of unrelated diversification of GE, the

firm remains a highly diversified company with no single sector dominating its business activities.

Still, under Immelt GE has focused more on capital intensive industries that benefit from financial

economies (e.g., internal capital market). This reflects Immelt being under market pressure to reshape

the corporate portfolio in order to increase GE’s value and share price. Overall, GE is best considered

“unrelated” versus related:

3. Evaluate Mr. Immelt as a strategic leader.

As a strategic leader, Immelt appears to be functioning at the fourth level (“effective leader”). Immelt

is outlining a vision and mission to guide GE toward superior performance. However, only time will

tell whether he leaves a lasting positive impact on the organization—the hallmark of Level-5 leadership.

Teaching Note —General Electric after GE Capital

of McGraw-Hill Education.

With respect to executive roles, Immelt displays multiple strategic leader roles. Interpersonally,

Immelt serves as the figurehead for GE, but his and GE’s long-term performace depends on his being

a leader.

Informationally, he is the acting spokesperson to shape public opinion, as well as the lead dissemina-

tor of information inside the organization. Additionally, Immelt needs to continue to monitor progress

in light of ongoing changes in the internal and external environments.

From a decisional perspective, Immelt can be shown to act as an entrepreneur who develops new

strategic initatives and allocates resources through corporate restructuring to achieve his strategic

goals.

4. Evaluate the evolution of GE’s corporate strategy from Welch to Immelt.

As the only firm remaining in the list that made up the original 1896 Dow Jones Industrial Average,

General Electric provides an example of the importance of corporate strategy and under Welch and

Immelt, GE’s strategy change significantly.

Corporate strategy focuses on where to compete along three dimensions: industry value chain,

range of products and services, and geography.

At the end of the discussion, it is likely useful to outline how corporate strategy evolves through

a process of variation, selection, and retention growth (see Exhibit TN-1). Under Welch, GE Capital

became a focus, expanding into the largest segment of GE with a clear emphasis on its. The 2008 finan-

cial crisis demonstrated the risk of both selling and financing its products (Note: This also contributed

to GM’s bankruptcy), and Immelt has selected to divest GE Capital to enable additional variation into

new businesses or growth of existing businesses.

Teaching Note — General Electric after GE Capital

implEmEntAtion: Focus on rEcommEndAtions

And How to ExEcutE tHEm

5. Where should Immelt invest the cash generated from the sale of GE Capital?

This question is at the crux of what Immelt will do next. Based on the prior question, the choice is

further acquisitions or investing in existing businesses for growth. GE is still working through its larg-

Looking at Case Exhibit 2A, the likely candidates are where GE already has a presence, or Power &

Water, Oil & Gas, Aviation, or Healthcare. In addition to its internal capabilities, GE needs to consider

external conditions. While the global economy has resumed growing there are multiple concerns that

could derail that growth. For example, China’s growth is slowing, Europe continues to deal with Greek

debt, and there are multiple conflicts including Syria/Iraq, Ukraine, and the potential for conflict relat-

ing to Chinese expansion in the South China Sea. Less risk would relate to investing in things people

need every day regardless of economic conditions. This suggests that GE may select its Power &Water,

Oil & Gas, or Healthcare divisions for growth. Here is a quick summary of the likelihood of investment

in GE’s largest divisions:

• Power&Water: TheAlstomacquisitionin2014already involvesthePowerand Waterdivision,

making additional investment there in the short-term less likely.

Additional Resources

1. http://www.economist.com/blogs/multimedia/2010/09/vijay_govindarajan_innovation (9:54).

2. http://video.nytimes.com/video/2008/04/11/business/1194817108542/immelt-on-g-e-earnings-

Teaching Note —General Electric after GE Capital

3. GE Capital 2008: http://video.nytimes.com/video/2008/09/25/business/1194822628400/immelt-

4. GE Capital 2015:

• https://www.youtube.com/watch?v=eJRIZv81UWM (3:03) “GE’s Immelt gets the memo.”

Discussion on CNBC of Immelt’s decision to divest GE Capital in 2015. It also discusses questions of

5. https://www.youtube.com/watch?v=xQ0z1-e2avI (13:41) “GE CEO Immelt doesn’t get why

6. http://www.economist.com/news/business/21605916-it-has-taken-ges-boss-jeffrey-immelt-13-

years-escape-legacy-his-predecessor-jack. A 2014 Economist article discussing challenges faced

Teaching Note — General Electric after GE Capital

ExHIBIT TN-1 Evolution of Corporate Strategy through variation, Selection, and Retention

Variation Selection Retention