The ability to notice trends early has provided the competitive edge for General Electric. Rising costs for energy, water, global warming and greening, trends bring concerns to General Electric. They realize issues regarding energy efficiency policies and emission standards need to be addressed. The world’s energy market is changing. To meet the challenges, technology will pay a huge role for GE. Breakthroughs in renewable energy, fuel cells, nuclear energy and coal gasification will have a tremendous impact on the environment and GE customers.
GE has pledged to help their customers and society solve ecological challenges and drive potential growth for their company through an assorted collection of new technologies and research initiatives. The following technical goals publicized by General Electric are:
- Investing $1.5 billion annually in cleaner technologies researched by 2010, up from $700 million in 2004.
- Introducing new products and services that offer significant and measurable performance advantages to its customers.
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Doubling by 2010 revenues from products and services that provide significant and measurable performance advantages to customers. GE has 17 products that meet its criteria, ranging from renewable energy to water purification and cleaner transportation.
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Reducing GE’s own emissions tied to global warming by one percent by 2012.
GE leadership believes that going green is a key aspect for future growth and revenues. CEO Jeffrey Immelt has stated on numerous occasions that technological environmental improvements will lead to profitability. The organization as a whole should undertake the efforts of becoming environmentally friendly as a future staple of company success and not just a hobby to please people.
Economic
The impact on policy on long-term investment decisions represents one of the most critical aspects in the utility industry’s current strategy and its future structure. The global energy and utility markets have never been this acute. Consumption has increased, volatile fuel costs and a major focus on environmental presence brings major challenges to the industry.
“Economic factor or forces that need to be considered for examination may include the availability of credit, the level of disposable income, the ability of people to spend their money, prime interest rates, inflation rate, trends in the Gross Domestic Product (GDP), and the direction of the economy which the company operates” (Pearce and Robinson 2004).
The leadership at General Electric expects U.S. buyer spending to decelerate while user credit tightens and becomes more costly to maintain. However, GE is suited for this type of economy because as an organization “they invest and deliver” (GE, 2008). The General Electric organization has the discipline to survive in this economy by maintaining strict risk discipline, a “Triple-A” balance sheet, no exposure to collateralized debt obligation losses (GE, 2008). This economic philosophy allows GE to set aggressive financial goals while in the midst of a down economy. GE controls its own growth by helping to create the future. GE’s innovative products help to shape the world’s future through its technology, infrastructure, global citizenship, and commitment to the environment.
Social
General Electric believes that as a global citizen and a global powerhouse, their duty is to not only make money and provide for their investors, but to use its innovative power to help solve the world’s problems (GE, 2008). According to the GE website, the organization should apply its spirit of innovation and commitment to integrity in an effort to concentrate on the complex challenges that impact the communities and people who are touched by the organization. This means that GE should approach global citizenship with the same discipline, strategy and accountabilities that drive all parts of its business and to generate profits that broaden far beyond the bottom line (GE, 2008).
As GE works to be a trailblazer in global citizenship, it has recognized four key strategic concepts that are in alignment with the organization’s growth strategy; “ecomagination, emerging markets, compliance and governance, and environment, health and safety” (GE, 2008).
Ecomagination is “a growth strategy that addresses our customers’ needs for more energy-efficient products and services, while growth in emerging markets allows GE to lay the foundation for citizenship from the inception of a business opportunity” (GE, 2008). Along with compliance and governance, environment, health and safety, GE is solidifying its position as a major leader in corporate citizenship.
In order to prove their commitment to the environment, GE joined the Energy Star million monitor drive to conserve energy and shelter the environment. GE has also dedicated themselves to developing energy saving, power management options on nearly 100,000 computer monitors across the U.S. Once on board, this initiative will save 42 million kilowatt hours per year. This type of savings can provide enough excess energy to illuminate almost 400,000 houses each month. A byproduct of this movement will be a decline in greenhouse gas emissions by over 27,000 metric tons per year, or the same as removing more than 6,000 autos off the road. These programs are cost effective; improve the quality of the environment and the quality of life of the world’s citizens.
Competitive Analysis
Strategic adaptability is the ability of a company to identify and properly presume variances in its exterior business atmosphere and make organizational changes necessary to adjust to the changed environment. A major determinant of a firm’s success is the extent to which the firm can relate functionally to its external environment, including its competition. “To achieve its proper place in a competitive situation, the firm realistically must evaluate its competitive strengths and weaknesses” (Pearce & Robinson, 2004).
General Electric has the expertise to adapt strategically to their competition and make changes to better position the company by producing energy efficient equipment and services for their customers. The ability to survive in a dynamic and highly competitive environment would be limited if GE did not understand the impact of others or of others on them. General Electric has taken these social, technical and economic trends and evaluated how they can achieve success. They have done this by addressing through various programs externally and internally. These programs are cost effective and improve the quality of the environment.
General Electric realizes that their competitive advantage is based on technology. As an organization, GE invests approximately $3 billion in research and development each year, in an effort to maintain a deep pipeline of new, innovative products. GE’s infrastructure equipment orders have grown average of 39% each year for the past three years. This is tremendous for GE’s current earnings however, the infrastructure equipment growth has the potential to grow at an even higher rate. In addition, GE added approximately 6,000 thermal and wind turbines, engines, and locomotives to its base, which promotes an even greater service growth. GE finished 2007 a $100 billion backlog of service agreements that is built on the technology of the organization’s base. The organization’s infrastructure business has been very profitable at a rate of $26 billion in revenues with the expected growth potential exceeding more than 10% annually for the next 10 years (GE, 2008). GE also maintains it’s technically competitiveness by reshaping GE as the market has evolved. “Since 2002 GE has exited businesses with $50 billion in revenues and entering businesses with $80 billion in revenues” (GE, 2008). This type of creative thinking has kept GE at the forefront in global marketplace while providing value to their investors.
Strengths and Weaknesses
General Electric must also address its weaknesses and solidify its strengths. General Electric’s core competencies lie in several areas across different segments and environments. General Electric’s strengths are distributed across all the core competencies. This enables GE to address a single strength or weakness while correcting multiple environments. Some of GE’s strength’s are, “Strong implicit and explicit parent support, consistent earnings and asset quality performance generated, diversified asset base and earnings sources with increased transparency, strong and seasoned management” (GE, 2003). These are just a few of GE’s strengths however; these strengths lay at the core of GE’s business. GE is not without its weaknesses as well, which can also be visualized as risk to the organization. These weaknesses are “aggressive, but improving use of financial leverage, highly acquisitive posture, exposure to systemic capital market shocks because of large and continuous funding requirements, limited financial flexibility with regard to investments in regulated subsidiaries” (GE, 2003). Addressing these weaknesses will solidify the core businesses and segments that GE operates in. Eliminating the weaknesses of the organization increases the likelihood of success at future opportunities such as development of green technology, reduction in energy consumption, and achievement of the company’s economic objectives. The success of these opportunities will ensure that General Electric remains a stable and secure company within the industries they operate.
Long-term Objectives
Long-term objectives are statements of the results a firm seeks to achieve over a specific period, usually three to five years. Strategic managers recognize that short-run profits are rarely the best approach to achieving and sustaining corporate growth and profitability. Long-term prosperity is achieved by strategic planners by establishing long-term objectives in the following areas: profits, production, competitiveness, employee development and relations, leadership, and social responsibility. In order for these seven objectives to be considered good objectives, they should be acceptable, flexible, measurable, motivating, suitable, understandable, and achievable.
General Electric has outlined some long-term objectives for the financial aspect of the company as well as created a philosophy that addresses the other areas necessary to long-term growth. CEO Jeff Immelt outlined these objectives in his letter to GE investors.
The long-term financial goals for General Electric are “organic revenue growth at 2 to 3 times GDP growth, greater than 10% earnings growth, operating cash flow growth exceeding earnings growth, and a return on average total capital of 20%” (GE, 2008). CEO Immelt believes achievement of the financial goals lies in the success of the other facets of the organization such as; Continued development of the GE brand development of business leaders, remaining a global innovator, growth in emerging markets, strong customer relationships, and expansion of its charitable citizenship.
Strategic Analysis and Choice
General Electric is an organization that has been around for over 100 years and has a historical track record for being financially successful and stable. The track record of financial success sends a statement to investors that GE has the forward thinking abilities necessary to remain a global leader. General Electric has shown the ability to change as the economy has shifted and the needs of the consumer have transformed over time. This proves that General Electric has an effective strategic plan in place and makes adjustments to that strategic plan as the economy and tis consumers dictate. Trying to fix what is not broken is not a generally accepted practice and General Electric has a strategic plan that works. While minute revisions may be needed, a major overhaul of General Electric’s plan is absolutely unneccessary. As one of the country’s most successful companies, General Electric employs the best and brightest business leaders with the sole task of staying ahead of trends and issues to guide General Electric’s strategic planning. General Electric’s process works and does not need major refinement.
Plan Goals and Implementation
The goals for this strategic plan are to identify key areas that General Electric is successful in, areas that need additional development, and state the organization’s long-term objectives. An effective environmental analysis is also a key tool to identify these key areas. This plan has shown that General Electric is strong in its technical innovation, economic philosophy, social responsibility, and possess a solid competitive edge.
In order to achieve sustained improvement in margins and returns, teamwork among product management, engineering, and supply chain is a requirement. General Electric has set detailed margin and cycle time goals for the top 30 product lines in the company, representing 75% of the organization’s earnings. The work is already delivering results. The most critical area needing the most focus during this current inflationary time for GE is on the reduction of the organization’s material cost. GE spends approximately $40 billion each year on materials and in despite economic inflation, GE should be able to reduce its material cost by $1 billion this year.
General Electric wants to foster an organization where the employees are looked upon as the protectors of GE’s culture, respectful of the organization’s legacy, and defenders of its reputation. GE requires that the employees perform with integrity, discipline, aggressiveness and ingenuity to solve global issues (GE, 2008). GE strives to develop its current leaders and their successors. This is evident in the recent loss of four key executives. The organization has not missed a beat with replacements.
So what does General Electric need to do in order to implement a successful strategic plan?
GE has developed cross-functional teams tasked to improve design, yields, supplier agreements, and global best-cost sourcing. Through this, GE should meet its customer delivery dates and technical specifications.
General Electric must also develop initiatives that work in a multi-business company. Open communication between businesses, employees who believe in the GE culture, development of strong leaders and businesses, and development of innovative products are the foundation to achieving the organization’s objectives. According to the CEO, “Our teams are trained to share ideas with each other and they love to compete. At GE, a single best practice can generate billions of dollars in savings, earnings, and revenues for investors” (GE, 2008).
According to Jeff Immelt, GE is committed to executing the financial goals the organization has outlined. He states in the investor’s letter “We plan to press our advantage in the essential themes that will shape our growth for decades: infrastructure technology, emerging markets, environmental solutions, demographics, digital connections, and creating value from origination. We love the leadership position we are building, and it is already delivering for you” (GE, 2008).
The organization maintains an expectation to earn the respect of the business world through the execution of its strategic plan. GE routinely ranks in the top five Most Admired Companies list published by Barron and Fortune magazine. GE was also named in Chief Executive Magazine as number one on the “20 Best Companies for Leaders.” It should also be noted that GE was named the fourth most innovative company according to Fast Company. This ranked GE behind companies like Google, Apple, and Facebook.
GE is also dedicated to civilizing communication throughout the organization and concentrating on things that may discourage investors, which may include adjustments to historical financial accounting results. General Electric continues to improve its model for controllership, and has provided additional regulatory assets throughout the organization in hopes of predicting key issues.
Financial Projections
Even in today’s difficult markets, General Electric had another record setting year in 2007. “Revenues grew 14% to $173 billion. Earnings from continuing operations grew 16% to $22.5 billion. We generated record industrial cash flow, and returned $25.4 billion to investors through the dividend and stock buyback” (GE, 2008)
In his letter to GE’s investors, CEO Jeff Immelt stated “We performed well against the operating metrics that we use to measure our progress. Organic revenue growth was 9%, surpassing our goal of growing at 2 to 3 times GDP growth. Earnings per share (EPS) from continuing operations grew 18%, well above our double-digit goal. Our operating profit margin grew 70 basis points, below our 100-basis-point goal, but we made good progress. Returns reached 18.9%, and we are on track for 20% in 2008. Industrial cash from operations grew 15%, well above our target, and our free cash flow was $19 billion” (GE, 2008). As an organization, GE is well suited to achieve this aggressive financial objective. The leadership believes this because they have a historical reputation for delivering on previous objectives. The organization’s key slogan is that they invest and deliver; every day, every quarter, and every year. The key to success for GE is to continue its growth in 2008.
In the same letter, CEO Immelt addressed the growth projections from General Electric stating “In 2008, we should hit all of our financial goals and outperform the S&P 500. Our revenues should grow by at least 10% to $195 billion, with organic revenue growth at 2 to 3 times GDP growth. Our earnings per share should grow by at least 10%. Our return on average total capital (ROTC) should near our target of 20%. We expect to return $18 billion to our investors through the dividend and stock buyback” (GE, 2008). These are very bold projections that are backed with historical data. General Electric has averaged double digit earnings growth the last 25 years with increased dividends the past 32.
GE is able to maintain and predict success because of their historical ability to meet the organization’s goals through effective management and planning. GE believes that as an organization they are “uniquely positioned to win in the essential themes of this era. They help to create the future and, by doing so, drive its growth” (GE, 2008). GE considers it a company built on leadership that has developed strong businesses that win within their industry. The leadership, coupled with strong business, delivers consistent earnings growth throughout the organization and it economic cycles. GE is a company that gathers ideas throughout the organization that drives superior revenue growth, profit margins, and high returns.
Critical Success Factors
Certain factors will play a major role in the continued growth of General Electric. One major factor in GE’s future success will be continued innovation. “Fast Company ranked GE the fourth most innovative company in the world behind only Google, Apple, and Facebook” (GE, 2008). Innovation has been the driving factor in GE’s part success and will be the main factor in future success. Continued development of the organization’s business leaders plays a role in the success of GE. GE believes that “building strong leaders is a strategic imperative” (GE, 2008). General Electric must continue to develop employees and future leaders who hold GE’s culture, legacy and reputation at the core of their work ethic. Strong leaders within the organization will have the foresight to plan for the future challenges of the organization. General Electric must also continue to remain a high performance company and continued growth of the GE brand. Should General Electric fail in any of these areas, the consecutive string of positive growth years could be in jeopardy.
Controls and Evaluation
Even a company as large as financially stable and strong as GE is faced with many issues that can affect the long-term growth of the organization. In order to combat this, the Board of Directors and its committee are tasked with identifying these issues and developing plans to address these issues. “The Board and its Committees focus on the areas that are important to shareowners — strategy, risk management and people — and in 2007 received briefings on a variety of issues including: controllership and risk management, compliance and litigation trends, U.S. and global tax policy, environmental risk management, social cost trends, acquisitions and dispositions, intellectual property and copyright protection, global trends, the reshaping and broadening of GE's businesses, and cost reduction” (GE, 2008). This control measure helps to stay in front of the ever-changing global climate and aides in addressing major organizational issues before they become widespread. The Board is not the only control and evaluation entity in place.
General Electric has also established two councils tasked to drive results: “a Commercial Council and an Operating Council. Each has about 20 members from around the Company that meets regularly to learn from each other, challenge each other, and root for each other” (GE, 2008).
The Commercial Council was formed in 2003 as a result of historically slow growth rates. The council focused on developing processes that would attain the desired revenue growth of 2 to 3 times the GDP growth. The organization believes that “at 8% organic growth, we would be safely ahead of our financial and industrial peers” (GE, 2008). The results of these councils have been positive. The council has led the “Growth as a Process” initiative which has resulted in the increased revenue growth the company was looking for.
General Electric has oultined specific and attained longterm financial goals that will require close monitoring and evaluation. Traditionally stock price is based upon the financial strength of the company therefore, General Electric must ensure that it achieves the financial growth it has outlined. In order to keep General Electric on track, the leadership should ensure that internal controls are in place to prevent excess spending and fraud. General Electric should also have external controls, through an independent auditor, to ensure that General Electric is on track to meet the objectives the leadership has announced.
Conclusion
General Electric is one of the world leaders in innovation and even a company as large and stable as GE needs a sound strategic plan. A strong plan allows GE to stay ahead of the changing marketplace and identifies key areas of success and improvement. GE’s strategic planning process outlines longterm objectives for the organization, contrl measures, the factors critical to the future success of the organization, and developed attainable financial projections. General Electric is a leader in the technical, social, economic and competitive aspects of the industries in which they operate. The CEO and Board of Directors have developed a plan that will meet the goal and objectives outlined in the strategic plan. General Electric’s strategic planning is effective and efficient and keeps GE atop the global marketplace.
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