CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–15
g. The role of the HRM manager is to identify the
objectives of the company’s core businesses and to
allocate employees that can best manage the costs and
6. Information System (N/A)
D. Summary of Internal Factors (See Exhibit 4)
V. Analysis of Strategic Factors
A. Situational analysis (See Exhibit 5)
B. Review of mission and objectives
1. Current mission and objectives are appropriate and no
changes should be made.
VI. Strategic Alternatives & Recommended Strategy
A. Strategic alternatives
1. Current objectives can be met by simple fine tuning.
2. Feasible alternatives
Keep GE Capital.
i. Pros
–At one point made up nearly half of all GE
profits.
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–16
–Would eliminate high–risk segment of GE
Capital.
ii. Cons
–Customers and other SBU’s would need to
get financing elsewhere.
a. Cost Leadership and Differentiation
a. Able to keep costs low, due to brand reputation
and network of businesses and business
alliances.
B. Recommended Strategy
1. Keep GE Capital
a. Refocus on original objectives of GE Capital.
2. Justification
a. Straying from original objectives is what got them in
trouble.
i. Sub–prime mortgages.
3. Policies
a. Develop committee to approve projects for GE Capital.
i. This will ensure that the projects are aligned
with strategy and core business.
ii. Limit the risk exposure.
4. Impact on core competencies
VII. Implementation
A. What kind of programs?
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–17
1. Restructuring GE Capital
a. Identify divisions of GE Capital that are not in line
2. Develop a revised credit approval process.
a. Make stricter guidelines to approving project
financing.
Who should develop programs?
a. Committee comprised of top GE Capital management
B. Is it financially feasible?
1. Only involves selling of divisions and making GE Capital a
leaner operation.
2. No major funding is required.
C. Standard Operating Procedures
VIII. Evaluation and Control
A. Feedback on performance
1. No knowledge of current IS systems at GE.
2. Performance can be measured by financial data (profits,
B. Control measures
1. Appropriate standards and measures are being used. They
have already identified which segments of GE Capital are poor
performers.
2. Reward systems are capable of rewarding good performance.
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–18
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
EXHIBIT 1: Board of Directors
General Electric
– Corporate
Governance
Board of
Directors
Internal or
External
Background & Experience
Board
Since:
Age
Jeffrey Immelt
Chairman of
Board & CEO of
GE
Applied Math degree and MBA
Started at GE in 1982. Held
positions in various GE SBU’s.
Serves on Presidential Committee
2000
56
W. Geoffrey
Beattie
External
Law Degree
President of The Woodbridge
Company
Serves on 3 other boards
John Brennan
External
Chairman and Senior Advisor of
The Vanguard Group
2012
58
Dr. James Cash,
Jr.
External
Former Chairman of MBA program at
Harvard Business School. Serves
on two other boards
1997
64
Marijn Dekkers
External
Former CEO of Thermo Fisher
Scientific
Chairman of Bayer Mgt Board
2012
55
Dr. Susan
Hockfield
External
President of MIT, former provost
at Yale
2006
60
Andrea Jung
External
CEO of Avon Products (beauty)
Serves on four other boards
(Apple, Hospital)
1998
53
Alan Lafley
External
Former CEO of P&G
Serves as special partner of
private equity firm and chairman
of Hamilton College
2002
64
Robert Lane
External
Former CEO of Deere & Co.
Serves on four other boards
(Verizon, BMW)
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–20
Ralph Larson
External
Former CEO of J&J (1989-2002)
Trustee of Healthcare foundation
2002
73
Rochelle Lazarus
External
Former CEO of Ogilvy & Mather
(marketing communications)
Serves on five other boards
(Merck, hospital)
2000
64
Roger Penske
Material
relationship
Founded Penske Corp, currently
CEO
Serves on two other boards
1994
75
Robert Swieringa
External
Professor of Accounting (Cornell,
Stanford, Yale)
Former member of FASB
2002
69
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
Exhibit 2: EFAS Table
Key External Factor
Weight
Weighted
Score
Comments
Opportunities
Political Lobby
0.05
0.2
GE leverages political strength
like using lobbyists for tax
advantages.
Economic Volatility
0.05
0.2
GE has weathered the 2008
financial crisis. Some
competitors have been selected
out.
Threats
Volatility in
0.1
0.3
GE has faced a reduction in
revenue sources due to the
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–22
Financial Markets
economic downturn.
Legislation and
Regulations
0.15
0.6
Restrictions in global credit
markets and tighter credit
regulations/underwriting
standards have made it more
difficult to get business done.
Turmoil in Global
Markets
0.1
0.4
Underperformance in Asia and
Europe. Need to adapt to
overseas culture and business
practices. This is a current
threat but has the potential to
be an opportunity in the future.
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
Exhibit 3: Ratios
Cash Ratio
0.30
0.29
0.33
Ratios
2011
2010
2009
Current Ratio
1.59
1.70
0.77
Quick Ratio
1.54
1.66
0.71
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–24
Exhibit 4: IFAS Table
Key Internal Factor
Weight
Rating
Weighted
Score
Comments
Strengths
Innovator
0.15
4
0.6
Identifying and entering
Focus On R & D
0.1
4
0.4
Dedicate 6 percent of revenue
to R&D.
Economies of Scale
0.1
5
0.5
Leverage buying power to drive
costs down.
Reputation
0.1
5
0.5
Use reputation to leverage
partnerships and human
resources.
Credit Rating
0.05
4
0.2
High credit ratings with S&P
and Moody’s.
Weaknesses
One of the Biggest
Polluters
0.05
1
0.05
4th biggest air and water
polluter.
Lost Focus on Core
0.05
2
0.1
Began entering markets outside
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
Bad Publicity
(Taxes)
0.1
3
0.3
GE only paid an effective tax
rate of 2.3 percent for more
than ten years, and that GE
realized $14 billion in profits
yet paid no taxes in 2011.
Exhibit 5: SFAS Table
Key Strategic
Factors
Weight
Weighted
Score
Duration
Comments
Short
Medium
Long
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–26
Growing Interest
in Alternative
Energy Markets
0.15
4
0.8
x
x
x
Alternative
energy is
becoming a
trend in the
global
economy. GE
has taken
initiatives
to enter and
lead these
new markets.
Baby Boomer
Economic
Volatility
0.05
4
0.2
x
x
The company
must continue
to hedge
against
economic
volatility
risk
Legislation and
Legislation
could prove
to be a major
risk for the
company. They
must continue
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
innovative
industries
(solar, wind,
etc.).
Economies of Scale
0.1
5
0.5
x
x
x
GE continues
to use its
size as a
strategic
advantage in
the
marketplace.
Reputation
0.1
5
0.5
x
x
x
HMR has used
its
reputation to
strategically
leverage
partnerships
and human
resources.
reputation.
CASE 32
General Electric, GE Capital, and the Financial Crisis of 2008:
The Best of the Worst in the Financial Sector?
32–28
GE Capital’s
over exposure
to Mortgage
Backed
Securities