32-1
CASE 32
General Electric, GE Capital and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
I. CASE ABSTRACT
The financial services industry was, by definition, volatile, and GE
Capital was particularly hard hit by the economic recession of 2008. With the
credit markets illiquid and financial markets falling, GE Capital found that
it was overexposed to commercial real estate and foreign residential
mortgages. At this point, GE’s parent corporation stepped in, began
reorganizing GE Capital, and significantly downsized the unit. GE Capital
sold most of its insurance lines, completely left the US mortgage market, and
substantially tightened its consumer underwriting guidelines. However, the
Decision Date: 2012 FY Sales: $147 billion
FY Net Income: $13 billion
II. CASE SUBJECTS AND ISSUES
Industry Analysis
Strategy Formulation Competitive Advantage
III. STEPS COVERED IN STRATEGIC DECISION–MAKING PROCESS
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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IV. CASE OBJECTIVES
1. To discuss the financial crisis of 2008.
2. To discuss the mortgage crisis of 2008.
V. SUGGESTED CLASSROOM APPROACHES TO THE CASE
1. This is an excellent case for instructor–led discussion.
2. This is an excellent case for an exam or written case analysis.
VI. DISCUSSION QUESTIONS
1. Should GE eliminate GE Capital?
2. Should GE focus only on Industrial Products?
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
VII. CASE AUTHOR’S TEACHING NOTE—Not Available
VIII. STUDENT STRATEGIC AUDIT
I. Current Situation
A. Company Background
1. Global leader in wide range of products/services.
2. Four main Strategic Business Units are: Energy, Technology
Infrastructure, GE Capital, and Home and Business Solutions.
B. Current Performance (FY2011)
1. Current Market Cap is $240.6 billion.
a. Ranked the 6th largest American Corporation by Forbes
2. Revenues—total revenues decreased 1.9 percent from prior
year to $147,300 million.
a. GE Capital revenues decreased 1.5 percent to $45,730
million.
4. Operating income grew 16.89 percent from the prior year to
$34,643 million.
5. Large amounts of debt—$234,000 million.
C. Strategic Posture
1. Mission
a. “Making what few in the world can, but everyone needs.”
2. Objectives
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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ii. Increasing margins
c. Operational
i. Six Sigma—cut down on waste while minimizing
errors.
ii. Larger U.S. exports
3. Strategies
a. Innovation, superior technology, and demonstrating
leadership in growth markets.
4. Policies
a. Purpose—creating a world that works better.
5. International Impact
a. GE operates in more than 100 countries.
b. 53 percent of revenues stem from outside of the United
States.
c. Interbred ranked GE 5th best global brand.
II. Corporate Governance
A. Board of Directors (source: 2012 GE Proxy)
1. Composition (see Exhibit 1)
2. Compensation of Nonmanagement Members
a. $250,000 per year (40 percent in cash, 60 percent in
3. Compensation of Jeffrey Immelt.
4. Strategic Involvement
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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a. Is in continuous dialog with top management.
b. Emphasize strategy and risk management.
c. Monitor strategic initiatives via site visits.
B. Top Management
1. Jeffrey Immelt—CEO & Chairman since 2001.
a. Knowledge/skills/experience
i. Has held several global leadership positions.
ii. Applied Math degree, and MBA from Harvard.
2. Shane Fitzsimons—CFO, Global Growth, and Operations
a. Knowledge/skills/experience
i. Has held several financial leadership positions
for GE.
b. Internal/External Path
i. Was VP of Corporate Financial Planning & Analysis
from 2004–2011.
III. External Environment—opportunities & threats (SWOT)
A. Societal Environment
1. Economy—current global problem
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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ii. High risk in certain business units (T).
iii. Unstable demand for products (T).
iv. Credit rating could be impacted (T).
2. Technology—Current Issue
a. Green energy
i. Tax Incentives—Energystar Ratings (O).
b. Healthcare Technology
i. Emerging healthcare technology/high growth (O).
ii. R&D focus—diagnostic medicine (O).
3. Political—Legal—Current Opportunity and Threat
a. Tighter Regulations (O/T).
i. Tighter credit regulations and underwriting standards
(O/T).
b. Governmental Lobbying (O/T)
i. Leverage political strength (i.e. tax incentives) (O).
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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ii. Lobbying costs money and could be poorly received (T).
4. Sociocultural—Current Opportunity
a. Baby boomer generation (O).
i. Demand for new healthcare technology (O).
B. Task Environment
1. Market cap for the industry is $137 Billion so competition is
rampant.
a. Threat of New Entrants: LOW
i. Start up costs for competitors—very high.
ii. Technology investment requirements—very high.
b. Bargaining Power of Buyers: LOW
i. Low–Cost Quality Products
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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ii. Innovation in mature markets.
iii. Industry leader
d. Bargaining Power of Suppliers: LOW
i. Economies of scale.
ii. Powerful conglomerate operating in more than 100
countries.
e. Rivalry Among Competing Firms: HIGH
i. Diversified International Industrial Conglomerate.
ii. Many direct competitors:
– Siemens, Phillips Electronics, 3 million.
f. Power of Other Stakeholders: HIGH
i. More than 300,000 employees.
ii. International conglomerate with hundreds of
business partners.
C. Summary of External Factors (See Exhibit 2)
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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2. Currently, the key factors posing the largest threats to GE
are the lack of innovation because GE Capital used up too many
resources. Complacency in the mature markets prevented movement
into innovative growth industries.
IV. Internal Environment—strengths and weaknesses (SWOT)
A. Corporate Structure
1. Global Conglomerate—four strategic business
units/decentralized decision–making
i. Energy
ii. Technology infrastructure
2. The structure is clearly communicated and understood.
3. Structure is consistent with objectives.
4. Similar corporations would be other industrial conglomerates.
i. Operating globally
B. Corporate Culture
1. GE culture is consistent with values.
2. Commitment to Innovation
i. 6 percent of industrial revenue invested in R&D.
3. Grow organically—decrease errors and cut down waste.
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
4. Corporate culture has been more successful domestically than
internationally.
5. Underperformance in Asia and Europe.
C. Corporate Resources
1. Marketing—everybody knows GE.
a. Focus on efficiency in mature markets—near zero
marketing budget.
i. Lost focus with GE Capital.
—Marketed as a credit card financing
b. Shift in focus almost caused collapse during economic
crisis.
i. Must re–focus on strong global brand and product
excellence.
ii. 53 percent or revenue comes from outside the US.
c. Industry leader in mature segments like household
appliances and electrics.
i. Will need to build name in new markets.
2. Finance
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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a. Financial Objectives of GE:
i. Growth in earnings.
ii. Increasing margins.
vi. Growth of U.S. exports.
b. Financial Performance
i. GE was heavily hit by the 2008 financial crisis
and recession.
ii. GE Capital in 2008–2009 was involved in a lot
of interest rate swaps, subprime mortgage,
commercial real estate, and massive commercial
offense.
iii. When the financial and real estate crisis
c. N/A
d. Financial concepts and techniques
i. GE is currently not over leveraged.
ii. They have fought back strong from the 2008
recession.
iii. By revamping GE Capital, the corporation was
able to stay afloat.
3. Research and Development
a. Innovation is what created GE to become successful. GE
is willing to spend 6 percent of the yearly revenue
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
b. Innovation has allowed GE to continue to create products
in services in all four strategic business units.
4. Operations and Logistics
a. Objectives, strategies, policies, and programs
i. GE prides itself on its operational efficiencies.
b. Operation capabilities
i. GE has strong operation capabilities.
ii. Operations are in more than 100 countries with
53 percent of operations in foreign markets.
iii. Products and services in every section of GE:
GE capital, Energy, Health, Technology, and
business strategy.
vii. Diagnostic medical tools market is projected to
grow 11 percent annually.
c. Manufacturing facility vulnerabilities
i. GE Energy could be vulnerable to energy
replacement to oil besides wind or solar power.
d. N/A
e. Operations manufacturing
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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i. GE outperforms its competition as a corporation.
ii. They operate in more at least thirty–five more
countries than their industrial product
competition.
iii. GE’s history and reputation as a company have
become a huge competitive advantage.
iv. GE was able to cut costs because of its
reputation as a market leader, large business
network, top employment, equipment, and capital
resources.
5. Human Resources Management (HRM)
a. Objectives, strategies, policies, & programs
i. The current HRM objective of GE is to acquire and
leverage existing human resources that will lead
to cost cutting and increased efficiency in
existing lines of business, while also identifying
and developing new, high growth areas of business.
ii. The company’s current HRM strategy is to use
its historical reputation to leverage partnerships
and employee hiring in order to employ the best
human resources possible. Specifically in the
United States, GE’s reputation can be viewed as a
major competitive advantage. This allows GE to
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
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iv. The HRM objectives and strategy fall in line
with that of the company. The companies
“traditional” approach has been to use its
reputation as a competitive advantage to obtain
b. The company uses its clout to acquire the best employees
possible, but it is implied that the company then
allocates these human resources where they are most
successful.
i. The basic trend that GE is following is that it
will continue to implement “traditional” policies
while continually identifying and implementing
newer policies in order to stay on the cutting
edge.
ii. During Jack Welch’s reign as CEO, the company’s
should flourish.
iii. The new HRM policies are designed in a way that
they will continue to support the company’s
strategic decisions in the future.
iv. The company’s HRM policies provide the company
with a competitive advantage, but they are also a
result of one of the company’s existing
competitive advantage. GE’s reputation can be
identified as an enormous competitive advantage,