A A S DISCUSSED IN the Chapter Case, General Electric has
been refocusing its businesses through aggressive corporate
divestitures and restructuring. It divested NBC
Universal, chemicals, and insurance. It also restructured
GE Capital.
GE’s focus on clean-tech seems to be bearing some
fruit, with the industrial sector experiencing double-digit
earnings growth in the last few years. The GE Energy division
grew to almost $50 billion in annual revenues, partly
through acquisitions, making up roughly one-third of
GE’s total revenues. Because GE management believes
the energy business has become too big to be managed
effectively, it continued its corporate restructuring and
split the energy business into three standalone strategic
business units in 2012: Power and Water; Oil and Gas;
and Energy Management. This move comes in response
to external trends as well as
internal needs.
Externally, it is GE’s
response to the shale gas revolution that is reshaping
America’s energy industry. For example, lower gas
prices drive up demand for GE’s gas turbines as more
and more power providers retire coal-fired plants and
replace them with gas-fired power plants. Internally, this
restructuring was motivated to create three more CEO
positions for the new SBUs for training a potential successor
for Jeffrey Immelt. After running GE for more
than a decade, Mr. Immelt needs to begin grooming
a number of potential successors since the company
tends to recruit its CEOs internally.
GE has also been increasing its global footprint.
International sales have soared from 19 percent of sales in 1980, to 34 percent in 2000, to over 52 percent
in 2012. Immelt believes that tackling big problems
on a global scale is a strength of conglomerates such as
GE. An example of a large-scale problem is the fact that
according to the United Nations, nearly one-fourth of the
world’s population lives without access to reliable power.
In India, one of the fastest-growing economies in the
world, the electrical coverage rate is about 65 percent.
India has set a goal to provide electricity to all its citizens
using a combination of national-scale power systems for
the major cities and smaller “micro grids” for rural areas.
India and other rapidly developing nations are seeking to
replicate a “leap frog” approach in energy similar to that
used in telecommunications. Instead of investing in vast
quantities of landline communications wires, India built
extensive mobile capabilities for communication needs.
In energy, this means using software-enabled “smart
grid” electrical systems and smaller-scale but numerous
renewable generation (such as wind, solar, and biomass)
locations across the country. The Indian government is
also encouraging smaller investments in order to improve
the efficiency of existing fossil-fuel–based generators.
When completed, this energy infrastructure is likely to be
more economical and robust than most systems in the
“more developed” Western economies. 67
Questions
1. Where do ecomagination and healthymagination
fit on the core competence–market matrix for GE?
(See Exhibit 8.8 .)
2. Take either the energy or health care industry
and draw the industry value chain. What areas of
potential vertical integration should GE consider?
3. What related diversification would you suggest for
GE in reference to its focus for the future?
4. How do GE’s corporate strategic initiatives of
clean-tech, health care, and globalization reinforce
each other? How might they generate conflicts
in the company?