General Electric (GE) operates as a technology, media, and financial services company spread across the world known for its core strengths in electric and other allied areas. GE deals with a wide range of products starting from aircraft engines, locomotives and other transportation equipment to medical imaging equipments. Manufacturing and marketing of household appliances is another major category of business line for the company. Leasing and other financial services are handled by GE Capital while the company controls the NBC television network. The company’s operations have resulted in total revenue of $ 182,515 million with a net income of $ 17,410 million for the fiscal year ended 31st December 2008. The company had around 323,000 employees as of the end of 2008 (Hoovers.com, 2009). Formed in the year 1892 the company has grown into a large corporation over the years. The company adopted varying HR policies and practices during the period of its existence till date. Many employee benefits such as group insurance, profit sharing, bonus, pension, stock purchase options were extended to the employees to boost their morale and improve the productivity. During the tenure of Jack Welch as chairman and CEO of the company during 1981-2001, a number of changes in the organizational structure were implemented and this even led to the closure of many unprofitable business lines of GE. Jeffrey Immelt who took over from Jack Welch combined the old process driven system with more focus on risk taking, sophisticated marketing and innovative practices. The process of talent management in GE comprises attraction, recruitment, compensation and development of talents. Well designed compensation plans and reward schemes are being implemented for retaining the talents. This paper presents an analytical report on the operations of GE from a HR perspective.
Porter’s Five Forces Analysis
Porter’s Five Forces analysis of the various divisions of GE takes the following structure.
|Force/Industry||Industrial||Infrastructure||Commercial Finance||Consumer Products||Industrial (excluding Consumer Products)|
|Intensity of Competition||High – Increased foreign competition||Moderate – Few large companies||High – offered by many companies||High – large number of players||Low – few large competitors|
|Threat of New Entrants||Low – High Capital investment||Low – high costs associated with doing business||High – easy entry possibilities||Moderate – easy to enter; but decent capital is needed||Low – high capital investment|
|Bargaining power of Buyers||High – Consumers demand lower prices and higher quality||Moderate – consumption based on production||Low – No control over pricing or quality of service provided||High – Consumers demand lower prices and higher quality||Moderate – few powerful buyers; others are smaller|
|Bargaining Power of Suppliers||Moderate – some resources claim market price; some large companies have lesser bargaining power||High – limited sources of supply||Low – No suppliers||High – Suppliers determine prices and quality of inputs||Moderate – some resources claim market price; some large companies have lesser bargaining power|
|Threat of Substitute Products/Services||Low – innovative; meet consumer demands, no feasible substitutes||Moderate – new technologies under development; alternatives available||Moderate – very few substitutes available||High – large number of substitutes available||Low – very few substitutes only available|
|Overall Attractiveness to the industry||High||Moderate||Moderate||Low||High|
From the above, it can be observed that Industrial activity excluding the consumer products fared better in the matter of intensity of competition. This shows that the company does not face much competition in this segment because of the presence of only a few players and GE is able to exercise a better control over this division. In the case of the commercial finance segment there is a higher intensity of competition due to the presence of a large number of players offering the same kind of products and services as GE. Consumer products segment also faces stiff competition from a number of competitors. Both the industrial and infrastructure segments have low intensity in respect of threat of new entrants, obviously because of high capital investment required. On the other hand commercial finance segment can accommodate more number of entrants because of low capital involvement as compared to industrial or infrastructure products and services (Chihak, Hart, Leaf, & Lobnitz, 2006).
In the commercial finance division, buyers do not possess any bargaining power as they have little control over the pricing of the products and services in the industry as well as on the quality of services offered. Industrial and consumer products divisions experience higher buyer bargaining power since the customers in both the divisions demand lower prices and higher quality. Commercial finance has the lowest bargaining power of suppliers and consumer products divisions experience higher supplier bargaining power because of the suppliers’ position in the industry for setting the prices for quality inputs. In the issue of threats from substitute products, industrial products enjoy lowest threat and consumer products have the highest threat.
Sources of Competitive Advantage
GE gathers its competitive advantage from the development of some of the best business leaders and from the development of widely practiced business techniques. In order to attract and retain best talents the company spends more than $ 1 billion annually on various continuing educational programs and training for its employees at various levels. The training centers and the development programs for the managers and senior executives have proved to be one of the distinctive competencies of GE. The manager training programs undertaken by GE has led to organizational learning to a level that enhances the company’s growth and competitiveness worldwide. This competency on human resources management is so rare in the industry and remains unsubstitutable. It is not easy for the competitors to imitate this rarity at least to the extent GE has practiced it.
Another source of competitive advantage for GE is their ability to practice effective change management where the corporation could change direction and constantly reinvent themselves to manage the changes occurring every now and then in the external environment. GE to meet the challenge of changing times, continually sets standards for new management practices, organizational designs, research and development initiatives, strategic planning and in a score of other areas. As stated by Jeffery Immelt the CEO of GE, “the employees of GE have an ability to live in the moment”. (Business Week, 2005) This distinctive source of competitive advantage remains rare and valuable for the sustained growth of the company. The competitors will not be in a position to imitate this competitive strength of GE. This makes GE become the ‘Most Admired’ company on several occasions. For GE it is not possible to substitute this competitive ability with some other resource.
The third source of competitive advantage for GE is the advantage resulting from its organizational structure, in which the company is able to successfully run several divisions in a myriad of industries over the period. Managing resource allocation, efficiency and productivity and quality issues in multiple industrial activities is a complex task and most of the companies have failed attempting to do it. GE is able to expand its territory into various cutting edge areas such as wind power and bioscience, which is a real challenge that cannot even be imagined by other companies. The ability to monitor and control the activities in different industrial settings is a distinct competitive ability for GE and this diverse exposure helps the company to bear the economic shocks in certain industries by offsetting them with the performance in other industries. Managing diverse industrial exposure, being a risky venture, no other company would attempt to imitate the business model of GE.
Sustainability of Competitive Advantages by GE
Competitive advantages to remain sustainable should meet the criteria of being unique, difficult to replicate, superior to competition, sustainable and applicable to multiple situations (Kotelnikov, 2001). In the case of GE efficient talent management, ability to change direction and to reinvent and ability to operate in multiple industries have been identified to be the prime sources of competitive advantages. The company has proved time and again that it has the capability to change direction in tune with the changing economic and business environment. The successful existence of the company for over a century proves that the company in future would also be able to sustain its unique ability of adaptability. Similarly the company has adopted superior HR policies and practices which have earned it the honor of being the most admired company not for a single year but for six out of ten consecutive years. This offers the sufficient evidence to come to the conclusion that the company has and will have the ability to sustain the competitive advantage of effective talent management in attracting and retaining the best talents. Effective succession planning programs being adopted by the company also go to prove this point.
The continued success of the company in all the different divisions is yet another example of its capability to sustain its competitive advantages. Jack Welch took a timely decision to limit the areas of operation of the company which laid a solid foundation for the company to follow course in retaining the competitive advantage in respect of some of the niche business areas.
Internationalization Plans of GE
The evolution of the new global manufacturing environment has necessitated large industrial organizations to expand their operations to different geographical locations on different considerations. In particular the following reasons make it worthwhile for the firms to internationalize their operations:
- Competition from foreign firms within the United States has grown continuously making the domestic competition stiffer
- Rapid increase in the demand for products from other countries has created favorable international market conditions
- Technological developments taken place within the last two or three decades has accelerated diffusion of sources of new technology in different countries across the world
- Changes in political and economic scenario away from the home country have created new and lucrative business opportunities and challenges for manufacturers (The National Academies Press, 2009).
The above factors are responsible for creating not only a new international market for manufacturing inputs and products but also the need for an increased awareness about internationalization. These factors have opened up a number of options for organizations to participate in international markets. GE with its existing presence in more than 100 countries and with the diverse products and services it is dealing, is in a better position to take advantage of internationalization and cash in out of the cost advantages of its presence in low-cost economies. The company with its strategic capabilities and ability to sustain the competitive advantages will have no serious challenges for its continuation of the internationalization plans. Multi-county presents would only enhance the competitive strength of GE as the company will be protected against economic shocks in one region by cushioning it in another geographical location. The company has a distinct advantage of a homogenous organizational culture developed through its in-house employee training and development programs which will only complement its efforts to expand internationally. However continued expansion plans in the countries where the company has already established presence, would strategically be a better move for the present time of global economic downturn. When the global economy starts to revive in the near future the company can make its plans to expand into new regions and countries to establish its operations. The company has to consider the implications of each of the above factors in respect of each product and location as they may apply differently to different products and regions. Extensive outsourcing is one of the options which has been one of the beneficial options for GE sometimes which may be reviewed for renewal (Business Week (a), 2006)
Recruiting and Retaining Talents
In the year 2006, Fortune magazine placed GE as the ‘most admired’ company among 500 companies surveyed based on eight key attributes – innovation, employee talent, effective use of corporate assets, social responsibility, quality of management, financial soundness, long-term investment and quality of products and services (Colvin, 2006). The company earned this position for the sixth time in a consecutive period of ten years. Innovative talent management practices were one of the key attributes for the success of the company. The company views the employees as a major source of competitive advantage contributing to the productivity and profitability of the company. GE identified employee talent as the most important resource than its products and accordingly has developed many innovative HR practices. The company therefore involved itself in the continuous development and evaluation of its employee potential (Paul, 2006).
Talent management in GE follows well-defined steps of attraction, recruitment, compensation and development of talents. Identification and recruitment of individuals with potential managerial capabilities and leadership qualities mark the starting of the talent management process. This step is followed by irresistible compensation plans and reward schemes which ensure the retention of the talent. The employees recruited are also provided career progression plans and are prepared through several training and development programs for taking up higher responsibilities in the future (Brady, 2006).
The company follows a systematic process of recruitment in which it recruits people from renowned universities worldwide. The company offers internships for brilliant students and co-ops programs for fresh graduates from colleges. GE has laid down strict criteria for choosing students for internships and co-ops programs maintaining the selection of students with excellent academic records only. The internees were provided with conducive working environment, lucrative compensation package and liberal benefits based on the performance of the individual internee. With the increased scope of activities and the number of applications handled, GE has replaced the manual handling of the application of employees with an online recruitment system. The application and screening procedures have been automated with the corporate Web site providing details of all available job opportunities in the various divisions of the company at various levels. The applicants can apply for various positions which meet their skill sets through online.
GE followed ‘promote-from-within’ policy for quite a number of years based on the philosophy that people promoted internally would fit well with the organizational culture with an enlarged commitment. This policy has proved successful by the improved performance of the employees. However the company also recognized best talents, even if it was available externally. The appointment of Sir William Castell an outsider as the Vice President of the Board and President and CEO of GE HealthCare evidences this.
Training and development is at the root of the successful HR initiatives of GE. The training and development programs of GE are devised with the objective of developing leadership qualities among the available talent pool of the company. This largely helps to improve the efficiency and effectiveness of the employees. GE adopts frequent changes in the training methodology to suit the changing business environment. The commitment of the company towards developing the talents can be observed from the fact that GE has spent about US $1 billion in the year 2005, for in-house training and development programs. The company has also made reimbursements to the employees an amount of$ 38 million towards the tuition fees and other expenses incurred by them for pursuing their masters programs in business administration and management. These initiatives have earned GE the reputation of being called ‘Leadership Factory’ by the media.
With a strong focus on leadership, a well-designed succession planning process has been developed within the organization which is unmatched by any other organization. Annual ‘Session C’ leadership and organizational talent reviews are at the heart of such a succession planning process. “These intensive reviews see the CEO and vice president of HR meet with leaders and heads of HR from across different business units. In each session, they review the talent pool and organizational focus of each unit in order to understand the future leadership potential coming through GE.” (Human Resources Leader, 2003)
Values play an important role in the conduct of GE’s business as well as in administering the HR functions. One of the key HR tools is the 9 Bloch chart which has nine squares to plot the individual ability of the employees to demonstrate the corporate values of GE. The employees are assessed on their ability to meet the Key Performance Indices (KPI) and based on the assessment of their place in the 9 squares their annual performance is rated.
Even with a diverse range of commercial operations in varied industries, and expansion to different geographical locations, the company is able to maintain a homogenous organizational culture because of strong leadership support to HR function and the constant focus on aligning the HR with business strategy.
It is suggested that GE focuses more on expanding the activities in the industrial products division than the other areas of operation. The company should also eliminate the consumer products such as appliances and lighting from its range as it may not contribute effectively to the overall profitability of the organization. According to the mission statement, the company should strive to work towards finding solutions through products and services that meet the toughest problems of the world. This thrusts a responsibility on the company to offer innovative products and services to meet the needs of large, medium and small sized industrial organizations. Dealing in consumer products does not fit into the overall strategy of the company. Perhaps, being consumer products being one of the earliest started divisions, the company would have attached sentimental ties to maintain the division in tact for so many years. However, GE should take into account the point that it is not ideal to expend its valuable resources on a division that is not contributing more revenue to the company and which does not fit into the overall organizational strategy. In addition, with its incomparable competitive ability and resources GE should aim to enter into such areas where it can really expect larger opportunities and achieve big.
The corporate level strategy of expanding into industrial products is also supported by the Porter’s five forces analysis. According to the analysis the industrial products (without consumer products) has low intensity of competition, lesser threat of new entrants and substitute products. The value chain of the company will not get disturbed by the discontinuance of the consumer products division as the resources can be used alternatively to support industrial products division on the implementation of the proposed strategy of eliminating the consumer products from the product range. The elimination of consumer products division would also lead to the elimination of a number of redundancies attached to the division. A larger proportion of budget allocation of resources to the industrial products division will help the company to provide more focus in the desired direction.
This paper identified excellent management training programs, ability to change direction and to reinvent itself and the ability to operate in different industries as the distinctive competitive abilities. The company has also adopted excellent HR policies and practices with respect to attracting, recruiting and retaining best talents within the company. As a strategic move the paper recommends the elimination of consumer products division from the portfolio of operations. Presently GE operates in six main areas – financial services, industrial, consumer finance, infrastructure, healthcare, and NBC Television Network. This paper recommends that GE should focus on core industrial products rather than concentrating on combining consumer products with the industrial products business line. With the elimination of the consumer products from its purview, GE would be able to get better competitive edge against the major rivals such as Whirlpool, Siemens AG and Emerson Electric. This would also enable GE to concentrate on a meaningful allocation of its resources to make the industrial products division perform efficiently resulting in increased revenue and profitability. With a large number of players and stiffer competition in the consumer products industry, GE would be spending its resources against earning reduced margins. The five forces analysis conducted on various divisions of GE indicate that the option of eliminating the consumer products division is highly beneficial to the organization. It is also advisable for GE to adopt the corporate level strategy of concentration on industrial activities which will result in increased synergies of revenues through realizing higher margin on industrial products, eliminating redundancies and enjoying inimitable competitive advantages.
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