Gems

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GE Health Care Case

Executive Summary

General Electric Healthcare was created in 2004 when General Electric (GE) acquired U.K. biosciences firm Amersham. Its predecessor organization, General Electric Medical Services (GEMS) originated as an x-ray business in the 1940s. Jeff Immelt took over GEMs in 1997 and took steps to grow the business from a $4 billion company to a dominant force in the worldwide diagnostic imaging market. Immelt stepped up acquisitions including a company that formed the basis for GMS-IT, a subsidiary focused on healthcare IT. One of his most significant initiatives was the Global Products Company (GPC) initiative that focused on cutting costs by shifting manufacturing, design and engineering activities from high-cost to low-cost countries. Under GPC, each product was built in one or two “Centers of Excellence (COEs)” and shipped anywhere in the world. “Between 60% and 90% or products made in a COE ended up being sold elsewhere.”[1] GPC’s global approach drove manufacturing, R&D, Product Design, Sales, Marketing, and Human Resources strategies with the ultimate goal of saving 10-30% on materials and 50% on labor.

In 2000, Immelt became CEO of GE and passed leadership of GEMS to Joe Hogan and charged him with the task of growing the company 20% annually. Hogan modified GPC and adopted an “In Country for Country” approach to better address country-specific demands within the existing global supply chain logic of GPS. The initiative was spearheaded by an “In China For China” policy that served “as the model for a localized version of the GPC concept that focused on segmenting and developing internal markets and building local management capability.”[2]

In 2001, GEMS partnered with Amersham and, in 2004, GE acquired the company for $10 billion. Together, GEMS and Amersham became known as GE Healthcare and Amersham CEO William Castell was named CEO of the new company. Castell advocated a shift from a late-disease healthcare model that focused on late-stage treatment to an early-health model that focused on diagnosing and treating diseases in their earliest stage. In order to accomplish this shift, Castell emphasized advances in “biology, bytes, and broadband;” that is, advances in genomics and related sciences, information technology, and connectivity. The synergy between GEMS and Amersham drove GE Healthcare to become a business that was more focused on healthcare than equipment sales and catalyzed collaboration with pharmaceutical companies. GE expected the Amersham acquisition to generate annual revenue synergies of $350 million to $400 million and cost savings of the same amount by 2008. In 2005, it realized $250 million in revenue and cost synergies. The following year, Hogan succeeded Castell as CEO of GE Healthcare.

1.Was buying Amersham a good idea? Why or why not?
Yes, it was a good idea for GE to purchase Amersham. The acquisition was taking shape nicely with 2005 revenue of $15.1 billion and $250 million in realized revenue and cost synergies. Besides becoming a critical piece to GE’s financial growth, Amersham was a key component of CEO Immelt’s plan to rebuild a culture of innovation at GE and ensure its status as a technological leader in the 21st century. The acquisition allowed GE to diverge from their traditional cost-cutting, efficiency, and earning strategy to focus on growing the company organically through innovation and develop imagination breakthrough projects that develop new lines of businesses, geographical areas, or customer bases for GE.

The formation of GE Healthcare after the Amersham acquisition allowed business unit CEO to shift their strategic focus from late disease treatment to early health through the biology, bytes, and bandwidth strategy. This has allowed GE to realize the benefits of Genomics and develop technology and equipment that were more clinical and diseased focused. This includes equipment with sharper diagnostic...
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