General Electric Strategic Position - 1981

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General Electric (“GE”), similar to many major corporations in the 1980s and 1990s, underwent a restructuring phase in line with the McKinsey Restructuring Pentagon. Through this restructuring, General Electric implemented a portfolio-planning model to manage the ever-increasing demands of a company involved in over 190 businesses. Ultimately, this model allowed GE to formally??? GE set lofty goals of increasing earnings per share 25% faster than the growth of GNP. In order to achieve this the company needed to address productivity and possible realms of expansion, but the systems in place often led to a lack of focus. Reginald Jones attempted to create value and compete in the market by implementing strategic planning and then integrated strategic planning to address productivity. Through GE’s engagement of McKinsey & Co. they devised a structure of Strategic Business Units along with Portfolio Planning. The development of strategic business units allowed the company to stay competitive in their respective industries by acting somewhat autonomously from GE Corporate. In the restructured GE, the SBUs were responsible for identifying crossovers to expand their competitive position by utilizing the entire GE network. The Portfolio Planning Model allowed GE to allocate resources to each SBU based on Industry Attractiveness and Business Unit Strength. The allocation of resources focused development on specific projects instead of “sprinkling money across a variety of businesses.” This matrix later would be called the GE matrix, which allowed GE Corporate to quickly analyze a business plan by highlighting the potential industry growth (using a Five Forces-style analysis) and looking at the relative knowledge within GE to capitalize on the industries market share. After the allocation of resources, GE identified business unit strategy. This strategic planning was ahead of its time in terms of management theory. Strategic Planners were required at each business unit to assess the strategic positioning of opportunities (including potential divestment) and to identify portfolio balance. This portfolio assessment identified the overall business unit balance in terms of cash-flow generation and growth prospects. After these metrics were defined, performance targets were set based on the business strategy and perceived competitive position. When combined with the BCG Matrix, GE was capable of making allocation decisions readily, addressing the productivity issue while maintaining its competitive advantage in industries viewed with positive growth potential. One can say the creation of value at GE in the 1981 depended on its use of metrics to focus on specific industries and growth opportunities. This created value by allocating resources more effectively in order to predict market trends and anticipate demand within markets before customers were able to clearly identify what was needed. In addition, this created value in terms of the shareholder value maximization model as GE innovated in order to outpace growth in GNP. Returning to the McKinsey Restructuring Program, it stands that GE created additional value and became an even greater competitive force across their broad industry footprint by capitalizing on the linkages between their SBUs. Part of Reginald Jones’ theory on implementing Sector level managers exemplified this value creation through corporate linkages. In order to stay away from a Holding Company status, GE Corporate realized it needed to add-value from the top-down. The end results was a structure whereby SBUs developed new business opportunities by ‘extending into contiguous product-markets;’ Sectors ‘developed new SBUs by diversifying within their macroindustry scopes;’ and Corporate developed ‘new sectors by diversifying into unserved macroindustries.’ This renewed focus allowed GE to add value across its hierarchy, competing quicker and more efficiently than competitors while leveraging the...
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