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GE's Growth Strategy: The Immelt Initiative (2: Rebuilding the…
GE's Growth Strategy: The Immelt Initiative
2: Rebuilding the foundation: beginning a marathon
2.1: Rebalancing the portfolio
2003
became the biggest acquisiton year in GE's history with total commitments exceeding 30$B
First megadeal
Vision: create a media business that was better positioned for a digital future
NBC was suffering from changes in media distribution (broadcast of television's market shrinking)
acquisition of
Universal Entertainment Business
Added
Content
Production facilities
Cable distribution
Strong management team
Second megadeal
acquisiton of
Amersham
British life sciences and medical diagnostic company
Brought
Biotechnology
Advanced diagnosis
Targeted terapies
Combination of their pharmaceutical biomarkers with imaging tech from GE could create new ways of diagnosis and treatment
Problem: organizational compatibility or strategic fit
Its CEO became in charge of GE Health Care and vice chairman of GE
Selling three businesses
Although recession provided buying opportunities, it was hard to sell businesses
Bidders want to give less money because the potential savings would have been already taken by GE
e.g.: Employers Reinsurance Company was hard to sell
Strong cash flow
Market could grow 15% annually
2.2: Focusing on customers, enphasizing services
Direct attention toward the customer, and redirect GE’s somewhat internal focus
Immelt found a
Commercial Council
Main Goal: To bring GE's best sales and marketing leaders together in a forum
That could
Transfer best practice
Drive initiatives rapidly through the organization
Develop a world-class commercial culture
Agenda
Developing world-class marketing capabilities
Taking six-sigma to costumers
Driving sales force effectiveness
Used Net Promoter Score (NPS)
Track changes in customer attitudes and loyalty
Trying compensation to improvements in NPS scores
By becoming more of a services provider
Most revenues in
2002
came from services
GE products were becoming commodities
Solution
Innitiative: At the customer, for the customer
Designed to bring GE's most effective internal tools and practices to bear their customers
The company began bundling its services and linking its
products to clinical information technology
Added a heath-care financial services business to the GE Healthcare organization
2.3 Driving for growth: new platforms, new processes
2002
Immelt asked business leaders to identify growth business platforms
6 opportunies merged
Health-care information systems
Security and sensors
Water technologies and services
Oil and gas technology
Hispanic broadcasting
Consumer finance
Megadeals and others
All added growth value
GE still followed its disciplined approach
2 - They launched their innitiative with a small acquisition in that growth platform
3 - After integrating it into GE, the objective was to transform the acquisition’s business model by applying GE growth initiatives that could leverage its existing resources and capabilities.
1 - Management segmented the broad markets and identified the high growth segments where they believed they could add value
4 - The company applied its financial muscle to the new business, allowing it to invest in organic growth or further
acquisitions.
By the end of
2002
these businesses represented 9$B in revenue and 2$B in operating profit
At the rate of 15% annual organic growth rate they would become larger than they thought
2.4: Aligning management: new people profiles
Biggest challenge
Make growth the personal mission of every employees worldwide
Management team might not have the skills or abilities to succeed in the risk enterpreneurial environmental
People needed to be growth leaders
Have market depth
Customer touch
Technical understanding
New personal competencies
External focus
That defines success in market terms
Think clearly
To simplify strategy into specific actions, make decisions, and communicate priorities;
Imagination and courage
To take risks on people and ideas
Inclusiveness and connection with people
Building both loyalty and commitment
Expertise
In a function or domain, using depth as a source of confidence to drive change.
Creation of 20 to 30 pillar jobs
The new leadership competencies also became the criteria for all internal training programs and were integrated into the evaluation processes used in all management feedback.
2.5: Funding the growth: operating excellence
Innovation should be funded with an intent to lead, but paid for by increasing productivity.
2003
One third of the Six-Sigma specialists were focused on a new innitiative
Cash entitlement
Target: GE to be twice as good as competitors on a number of benchmarks such as accounts receivable or inventory turnover
It would add 7$B in cash
2004 Innitiative Lean Six-Sigma
Borrowed the classic tools of lean manufacturing and
set them to new applications
2002
had been a terrible year for the company
Revenues were up only 5% after a 3% decline the prior year
Earnings increased by only 7% (and not 2 digits)
Stock dropping 39%
4: Going forward: Immelt's challenges
2006
Immelt felt that GE was placed on the growth path he had laid out over four years earlier
Between
2002
and
2005
He had put 30$B of divergestures on the block
Completed 65$B in acquisitions
Made major investments in new capabilities in technology, marketing and innovation
Main challenge now
Maintain the growth in this 150$B global giant
Convince the financial markets that the changes he had initiated would enable this global giant to deliver on his promise of continued double-digit growth
1: Taking Charge: setting the agenda
Tragedies
Immelt realized he needed to innovate
1.1 Building the past, imagining the future
Like Welsh, Immelt saw the company as a well-integrated, diversified company
Commited on building what he saw as the core elements of the company's past success
Used weaknesses as strengths
to lead to
Big, fundamental and hIgh technological infrastructure industries
1 more item...
Diversity
Size
Strong businesses
Bound through a set of companywide strategic initiatives
Managed by great people
Culture that was performance driven and adaptive
Competitive advantage
that required commitments
2 more items...
Integrated businesses
Share business initiatives
Share financial disciplines
Excellent financial disciplines
Tradition of sharing talent and best practices
Sharing culture and integrity
And NOT a conglomerate, as people used to see it
9/11 2001
Terrorist attacks
Destabilized an already fragile post-internet bubble stock market and lead to a downturn in an overheated economy
Donated 10$M to families of rescue workers and dispatched mobile generators and medical equipment to WTC
Purchased 25,000 GE shares on his personal account, trying to reassure stock markets
Promised financial analysts that
2001
profits would grow by 11% and double digits again in
2002
Still, less than predicted previously to
2000
(GE would grow 18% per year)
Enron scandal
lead to
Euron's bankruptcy
Market punished GE stock
GE operations were too hard to understand
Financial manipulation
9/7 2001
Immelt took over GE from Jack Welch
By the end of the 1st week, GE's shares dropped 20% (company lost almost ~80$B of its market capitalization)
Welsh used to have 5% organic growth per year, timely acquisitions and clever deal making
Company used to have 2 digit profits since 1990
3: Preparing for liftoff: Innovation and internationalization
2004
GE began showing signs of more robust growth
To drive its earlier growth platform challenge deep into organization, the CEO launched a process he called
3.1: Imagination breakthroughts
To estimulate ideias from leaders
3.2: Of town halls and dreaming
Leaders would go out and in the field and get in touch with markets
Setting the example himself by spending
at least five days a month with customers, he began creating forums he called “town hall meetings.”
Potential to generate, over a three year horizon, at least 100$M in incremental earnings
Technological innovations
Market expansion opportunities
Product commertialization proposals
Ideias to create value for customers
Required each business leader to submit at least three breakthrough proposals a year for review by
Commertial Council
11 business had grown their earnings by double digits
GE was positioned to grow its industrial earnings faster than its financial services earnings
3.3: Infrastructure for developing countries: a new growth market
2004
Immelt push for globalization also began bearing fruit with revenues
Growing 18% to 72$B
China represented the most visible growth opportunity
3.4: Reorganizing for efficiency and growth
2005
Immelt anounced that a major reorganization consolidated GE's 11 businesses into 6 large units
Important goal: better align the businesses with customer and market needs
Another goal: to create an organization that gave opportunity to younger growth leaders to drive their businesses
NBC Universal
GE Health Care
GE Commertial Financial Services
GE Industrial
GE Consumer Finance
GE Infrastructure
Need to spend most of their time coaching, developing, and supporting the younger managers
who were to be pulled up into the 50-odd profit-responsible units directly under them