Research Paper on "General Electric Strategy"

Research Paper 10 pages (3188 words) Sources: 10

[EXCERPT] . . . .

General Electric in general, and IS specifically, aim for the upper right quadrant where they offer superior products at premium prices. As a rule -- and there may be individual products that stand as exceptions -- GE is effective in this strategy. The company has a tendency to divest business where it cannot occupy a dominant position in this quadrant (Sun, 2014).

Rivals

The rivalry in this industry has a moderate degree of intensity. This implies that the firms in the industry will seek to make strategic moves against one another, but without the intensity that might occur in, say, a duopoly. One of the reasons why intensity is constrained is that the companies in the business are often quite large, and they compete on the basis of building relationships with their customers. Within the context of these relationships, they aim to sell a wide range of goods. GE IS first breaks down its business by customer type, then by product type, because of this arrangement. Most customers will not have exclusivity with any one supplier, which increases the level of competition, especially for major buyers and major projects. From the customer's perspective, it makes sense to have multiple suppliers, first as a hedge against supply or service issues, and second to play the different competitors against one another when needed. Handing any given supplier, no matter how attractive their products are, a monopoly is not a cost effective supply chain strategy, so most major customers will not do this. The result is that there is constant competition among the players in this industry for a percentage of each customer's business. Where the rival is also a conglomerate like Siemens, the rivalry will take the form of competing prices and terms on different bundles of goods, and it is not uncommon for GE to have to bid on major projects with multiple rivals.

As a rule GE is not stronger than its rivals. This is not to say that GE is a poorly run company by any means -- it is run very well -- but its rivals are also multi-billion dollar conglomerates with equivalent capabilities and access to managerial talent. GE's total revenues last year, for example, were $146 billion, but Siemens had total revenues of $93 billion and Phillips had revenues of $30.8 billion. ABB's revenues are $41.8 billion, and Emerson has revenues of $26.2 billion -- there are a lot of very strong, large competitors in this market. Another rival, Toshiba, had revenues of $54.7 billion, all of which illustrates that as good as GE is, its rivals are some of the largest and strongest companies in the world, with excellent managerial and technical capabilities, diversified revenue streams and strong home markets. The key to competition in the future is going to remain with the development of technical capabilities, and finding ways to cuts costs on manufacturing when products start to become commoditized. Given the strength of GE IS's industry peers, executing on this will require a constant flow of resource to both marketing and the research & development department. Thankfully, the conditions of the industry, as outlined in the Porter' five forces model, show that the industry is generally favorable for profitability.

Competitive Position and Resources

General Electric Industrial Solutions has a strong competitive position. GE has strength in terms of its brand, which has an estimated value of $45 billion, which ranks it 6th in the world. This is higher than its major rivals, which are ranked 42nd (Phillips) and 49th (Siemens) (Interbrand, 2014). This illustrates the strength of GE's brand, and its positioning within the marketplace. However, at these levels there is not necessary a lot of incremental value over its major competitors, all of whom have very strong brand power within the industry. GE does have effective positioning over other companies that are not major brands in the business. Niche products have to demonstrate inherent superiority over GE products in order to win share. It is not entirely known the degree to which customers view discounted products (in the lower left quadrant of the industry positioning map) as viable substitutes -- surely some do but more do not, given how strong the sales of the major differentiated players are. Many companies cannot afford to use low-cost competitors for things like power systems.

General Electric and its competitors are all equipped with considerable resources, which for the most part negate the inherent scale advantages of GE. All companies can, if they choose, divert considerable resources into research and development, as a means of improving their competitive positioning within this industry. All companies have access to low cost capital, given their access to strong domestic banking systems, their inherent financial strength and diversified revenue streams. Because the major competitor tend to be located in different countries, each has a strong home market on which to draw -- the largest industrial markets in the world -- and each also has access to top level talent in their countries by virtue of their size, prominent and respective reputations for managerial excellent. GE might outcompete other American companies like Emerson for things like leadership, but Siemens and Toyota have domestic leadership pipelines of equivalent quality. Among these heavyweight, everyone has a lot of punching power.

The major advantage that GE gets from its size is that it has some economies of both scale and distribution that its competitors might not have. All can compete for any project, but GE will have a slightly better brand and better bargaining power, even over giants like Siemens and Toyota. Each also has a slight disadvantage when seeking business in the growing Chinese market, in that they are all outside firms, thus disadvantaged over domestic competitors. Internationally, Chinese competitors have little pull, but in their own country the playing field is more level.

Strategy Formulation

It is recommended that General Electric maintain its current strategy of being a best-cost provider, or just a straight differentiated provider, depending on the product. GE should utilize the differentiated strategy on newer products and those where it has some degree of patent protection. When a product is commoditized or subject to more intense competition, it only makes sense that a best cost strategy be adopted, because in that situation customer are apt to become more price sensitive, and GE will need to respond to that.

But in general, the evidence shows that GE's positioning strategy is working. All firms in the industry -- at least the ones making billions -- have adopted this strategy, where brand name, innovation and the ability to meet comprehensive sets of customer needs are all critical success factors. Moreover, as noted earlier, GE's structure has been built along the pursuit of the differentiated strategy, and to change that strategy would force GE to restructure the organization. At present, with healthy margins and favorable industry conditions going forward, there is no real reason for GE to change course. Furthermore, the overarching strategy for General Electric is to only operate either in industries with persistently high margins or in industries that are growing. This is basically an adoption of the BCG Matrix of investing only in cash cows and stars, and making a point to cut question marks and dogs (Stern & Stak, 2014). Right now, IS a cash cow, but still has some growth left in it, especially if GE can win market share from its many competitors. It is the market leader, which implies that it can, with its brand and slight scale advantage, continue to gradually win share in this business.

Implementation and Evaluation

The implementation strategy is easy -- keep doing what it's doing and GE will be fine. This is a situation where if it is not broken, it should not be fixed. GE has implemented a structure that is providing this division with the human and financial resources that it needs to be the market leader, and should continue to do so.

The evaluation of the strategy is a different matter. Even when the strategy is to maintain course, the company needs to have a sense of what it wants to accomplish with that strategy and therefore should also evaluate on the basis of existing metrics -- revenue, profit, market share, number of customers, revenue per customer, revenue breakdowns by industry and geographic markets, margin measures and new patent approvals. These measures will ensure that the company remains on course, and can provide insight into when industry conditions are starting to turn. The company will want to anticipate and drive these changes, which means it must in particular pay attention to technological development, and GE will want to be a leader among its peers in new patents and new product introductions in order to maintain its competitive positioning that is so favorable right now.

References

D'Aveni, R. (2007). Mapping your competitive position. Harvard Business Review. Retrieved November 30,… READ MORE

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