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GE Strategy Gone Wrong

GE pursued a conglomerate diversification strategy to diversify risks and leverage shared resources across industries. Over time, GE shifted to focus on aviation, renewable energy, healthcare and power, reflecting a move to industries of core competence. GE also increased focus on global and Asian markets to diversify geographically. However, GE's large financial exposure and debt led to losses of over $530 billion during the global financial crisis as its businesses struggled.

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436 views5 pages

GE Strategy Gone Wrong

GE pursued a conglomerate diversification strategy to diversify risks and leverage shared resources across industries. Over time, GE shifted to focus on aviation, renewable energy, healthcare and power, reflecting a move to industries of core competence. GE also increased focus on global and Asian markets to diversify geographically. However, GE's large financial exposure and debt led to losses of over $530 billion during the global financial crisis as its businesses struggled.

Uploaded by

quincygwaro
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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GE: Corporate Strategy Gone Bad

Student´s Name

Affiliation
1. What kind of diversification was GE pursuing? What are the sources of value

creation with this type of diversification?

General Electric (GE) pursued a conglomerate diversification strategy, which involves

having a presence in different industries unrelated to the product an entity produces and offers in

the market. By employing this strategy, General Electric wanted to create value by diversifying

its risks, enjoying economies of scale and scope, access to different needs, and cross-selling

opportunities (Rothaermel, 2019). Additionally, the conglomerate diversification strategy

allowed GE to leverage the company´s shared resources and expertise across the different market

segments. This strategy worked well for GE for many years under Welch´s leadership because it

allowed the company to tap into a broader market and customer base, thus reducing its

dependence on one industry.

2. Discuss changes in GE’s product and geographic scope (depicted in Exhibits MC8.2

and MC 8.3). Describe the most important trends. What stands out to you?

Exhibits MC8.2 and MC8.3 show significant transformations in General Electric's (GE)

product and geographic scope over the years.

Product Scope (Exhibit MC8.2 to MC8.3)

i. Shift towards Specialized Industries: The most apparent trend is the move from a diverse

product portfolio in 2001 to a more specialized focus in 2021. Aviation, Renewable

Energy, Healthcare, and Power dominate the product scope, indicating a strategic shift

towards industries where GE can leverage core competencies.

ii. Emphasis on Sustainable Solutions: The inclusion of Renewable Energy as a major

component in 2021 reflects a response to global trends and an increased focus on


sustainability. This aligns with the growing demand for eco-friendly solutions and

indicates GE's commitment to addressing environmental concerns.

iii. Healthcare as a Core Segment: Healthcare will emerge as a significant component in

2021, reflecting the recognition of the importance of the healthcare sector and the

potential for growth in medical technologies. This diversification aligns with global

health needs and technological advancements.

Geographic Scope (Exhibit MC8.3)

i. Global Market Diversification: In 2021, there is a noticeable reduction in the

concentration of revenues from the U.S. (44% compared to 66% in 2001). This indicates

a deliberate effort to diversify geographically, reducing dependence on a single market

and tapping into opportunities in other regions.

ii. Increased Focus on Asia: The allocation of revenues from Asia has grown significantly,

underscoring the strategic importance of the Asian market. This reflects GE's recognition

of the region's economic growth and the potential for business expansion.

iii. Balanced Presence in Europe: While Europe remains a key market, the proportion of

revenues has decreased slightly. This suggests a recalibration of focus towards emerging

markets while maintaining a strong presence in developed regions.

What Stands Out

i. Strategic Focus on Core Competencies: The most noteworthy aspect is GE's strategic

focus on core competencies, concentrating on industries where it has a competitive

advantage. This aligns with the principles of related diversification, allowing the

company to capitalize on synergies and market leadership.


ii. Adaptation to Global Trends: The emphasis on Renewable Energy and Healthcare

reflects GE's transformation to evolving global trends. GE positions itself as a forward-

thinking and adaptable company by aligning its product portfolio with emerging needs

and sustainable practices.

iii. Geographical Resilience: The deliberate effort to reduce dependence on the U.S. market

and diversify into Asia and other regions indicates GE's commitment to geographical

resilience. This strategic move mitigates risks associated with regional economic

fluctuations.

3. Why has GE lost a whopping $530 billion or almost 90% of its valuation since its

peak? What went wrong?

The loss of about 90 percent of its valuation when the company peaked can be attributed to

several factors. For instance, at the time of his exit from GE, Welch had converted the company

into almost an unregulated bank. The mini-case indicated that the company's assets were

virtually half its profits and shares, implying that it had more liquidity than its assets. This

exposure to financial markets was significantly affected during the 2007-2008 global financial

crisis, which required most organizations to find additional funds to run the dying businesses.

Financial institutions undergo restructuring and asset divestment in this economic crisis to

survive the crisis. Additionally, the company's aggressive use of debt to fund its operations

became unsustainable any longer for the company. The global downturns, especially in the

energy and healthcare sectors, also contributed to the loss of 530 billion dollars. Besides, the

company's leadership change has contributed to the loss of the company's valuation because

different CEOs come with varying leadership strategies. Since 2002, GE has often changed its

CEOs, making it subject to financial manipulation.


Reference

Rothaermel, F. T. (2019). Strategic management.

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