Paper Example on Immelts Redirection of GE Strategy

Upon being appointed as the CEO and chairman of GE in 2001, Immelt began to redirect the companys strategy. In his pursuit of redirecting the companys strategy, Immelt employed different approaches. Immelt crafted a long-term multipronged transformation strategy. Firstly, reconfigured the companys business portfolio. Secondly, he reoriented GE's performance goals and objectives for revenue growth. Thirdly, the chairman and CEO refocused the company's competitive advantage to revolve around customer service and technological innovation. Immelt's fourth approach involved adjusting the companys structure, corporate culture, and also management processes (Grant, 2015). Immelts transformation strategy was aimed at achieving the companys goals of not only profitability but also increasing market share in a competitive market. His actions were in line with strategies that can be employed by transformational leaders.

According to Pomerantz and Van Dusen (2017), Immelt was not only a deal maker but also persistent and resilient person. Unlike the company inherited, GE has undergone tremendous transformation by the time Immelt will be leaving the company (Blodget, 2017; Feloni, 2017; Bjorlin, 2017; Kirkland,2015; Lohr,2017; Seeking Alpha, 2016; Micklethwait, 2017; Blank, 2017; Magee, 2009). To transform the company, Immelt spins-off media, and financial services division and real estate. To strengthen the GEs core business, Immelt focused on energy infrastructure where he acquired major assets including Alstom, a leading power company, and merging its Oil and Gas division with Baker Hughes (GE, 2017; Reuters, 2017; Passeri, 2015; Trefis Team, 2015; Clough, 2016; Business Wire, 2017; Patel, 2015). The acquisition was strategic since Immelt had observed that there would be growing global energy requirements in the future and that GE was going to play a key role.

In reconfiguring the business portfolio of the company, Immelt dramatic changes over time. In 2001, GEs business portfolio comprised insurance (15%), capital finance (24%), Infrastructure (41%), and Plastics and media (21%). Between the year 2001 and 2005, he had shrunk insurance by 7%, expanded capital and finance by 19%, shrunk infrastructure by 7%, and reduced plastics &media division by 6%. By the end of 2005, the companys business portfolio comprised insurance (8%), capital finance (43%), infrastructure (34%), and plastics and media (15%). After 2005, he continued to focus more capital finance and infrastructure by shedding insurance, and plastics & media. By the end of 2016, the companys business portfolio comprised capital finance (25%), and infrastructure (75%) as shown in Fig.1 (Grant, 2015).

Fig.1 Showing GEs Changing Business Portfolio 2001-2016 (Grant, 2015)

Immelt second key task in redirecting GEs strategy was reorienting of GEs performance goals and objectives toward revenue growth. Initially, he began by setting up ambitious performance targets for the company. Firstly, he set up a target of sales growth to be 2-3 times the growth of global GDP. He then set up a target of earnings growth of 10%, with a further target of 20% return on companys total capital. However, despite his ambitious targets, the companys performance has always remained below targets as demonstrated by stagnation in share price since the time he took office. While his predecessor, Jack Welch, made a net income of $13.6 billion, the company's profits had fallen in 2016 when Immelt was about to leave to $9.2 billion (Shen, 2017). Investors and analysts contend that Immelt has not managed to achieve his target since the company's shares have plunged by almost 30% since he took over from Welch in 2001 (Thomas, 2017; Hartung, 2017). Additionally, the company has lost over $150 million in market cap since 2001 since he took the helm in 2001. Although the company's performance might have been affected by the terrorist events of 2001 when Immelt took over, analysis is of the stock markets show that while the company's cohorts have been improving, its performance on stock market such as Dow has been the worst since Immelt was appointed the company's CEO in 2001 (Authers, 2017). During Welchs helm, the company moved from position 10 in Fortune 500 in 1981 to 5th position in 2001. However, the company is ranked 13th in Fortune 500 in 2017 when Immelt is exiting the company (Shen, 2017). Immelt's ambitious targets of reorienting of GEs performance goals and objectives toward revenue growth did not work as shown in Fig. 2 and Fig.3.

Fig.2 Showing GE Performance between 2001 and 2004 (Grant, 2015)

The third aspect of Immelt's reorganization of GE involved an emphasized focus on the competitive advantage that was anchored on a combination of customer service and technological innovation (Hellweg, 2007; Bartlett, 2006; Downie and Adela, 2012; Ngoie, 2014; Grant, 2015; Immelt, 2015; Lohr, 2010). From the time it was founded, GE has always emphasized on exceptional management. In fact, some of the greatest management gurus such as Peter Drucker once worked alongside GE to pioneer new methods of corporate management. While working in various divisions, Immelt had acquired a reputation for not just exploiting new technologies but also driving customer service. Immelt found that customer service and innovation could be GEs major sources of competitive advantage.

Fig. 3 GE Share Price 1995-2015 (Grants, 2015)

Immelt believed that technology and innovation were going to be the key driver of the company's future growth (Bartlett, 2006; Immelt, 2015). Therefore, to ensure that technology played a key role in the company's growth, he invested heavily in R&D center making it not only an intellectual hothouse but also a facility that speeds up the internal sharing of new technologies among the various departments. His emphasis on innovation was evident in his decision to expand the R&D budget, hire more researchers, and establish research centers in various parts of the world including India, Brazil, Germany, Israel, and China (Grant, 2015). Further, his focus on technology was oriented toward fewer but bigger long-term programs. Central to his innovation were areas such as sustainable energy, energy conversion, nanotechnology, advanced propulsion, and molecular imaging and diagnostics (Keler, 2009; Carnevale, 2011). The outcome of Immelt's efforts were the evolution of hybrid locomotive, smart grids, and sodium batteries. He came up with a new concept of Ecoimagination that was aimed at creating solutions for sustainable energy (GE, 2012, Haldermann, 2016). Breakthrough digital technologies created during his era created opportunities for the companys business in sectors such as oil and gas equipment, jet engines, electricity generators, locomotives, and health care equipment (Grant, 2015).

Besides innovation, Immelt has identified customer service as the major source of the companys competitive advantage (Grant, 2016; Krishnamoorthy, 2015; Law Aspect, 2017; General Electric, 2017b). Increasing the companys capacity to offer better services to the customers through the provision of integrated solutions was one of Immelts major goals of the organizational changes at GE. Upon joining GE, Immelt has always stressed the need for customer orientation, spending time with potential and current customers, building long-term relationships with them, and providing solutions to their problems. Immediately, he joined the company; he announced that he was going to change the operation from just being a resource base that involved the provision of support to the creation of value. He identified functions that add value and drive growth in every business, and it included functions that involved the creation of new products, dealing with the customer, selling, management of money, manufacturing, and driving controllership (Grant, 2015). To ensure that his plan succeeded, he increased investment in the companys marketing department. The marketing budget including not only the hiring of marketing executives but also developing processes for identifying new service and product offerings as well as unfulfilled customer needs. To enhance customer service, the company bundled products with support services so that it could offer customized solutions. Further, it expanded the range of customers service package to include training, technical services, financial services, and other kinds of customer support (Grant, 2015).

Immelts Strategy and Requirements of the 21st Century Business Environment

Profitability was key to the 21st-century business environment. While GE's financial performance during the leadership of Welch existed in an economy that was characterized by growth, optimism, and confidence, the dawn of the new century presented a new set of challenges for Immelt. The late 1990s was characterized by enthusiasm, and the inevitable downtimes were accompanied by difficult times. Consequently, entire industries collapsed, large corporations filed for bankruptcy, poor business models yielded to the market pressure, and corporate credibility became a subject of discussion (Grant, 2015). In recognition that he ascended to the position of CEO and chairman of General Electric at the time the business environment was experiencing turbulence, Immelt had to craft his strategies in line with the requirements of the times. However, the CEO viewed GEs diversified nature of business as a source of stability. According to Immelt, diversity is a source of strength through disruptive events as well as commodity cycles, and hence it constitutes a key source of value from a diversified company (Deutsch, 2007).

Unlike the 20th-century business environment, one of the key changes in the 21st-century business environment was the growing questioning obsession with the maximizing shareholder value that was common in the 1990s. To align GEs business with the demands of the new challenges, Immelt shunned away from cruder approaches to shareholder maximization right from the outset (Hartung, 2017). Immelt argued that rather than managing the stock price, the CEOs job was to manage the company for the long-tern revenue growth that will ultimately drive the stock price (Grant, 2015). However, according to him, the critical challenge facing a company operating in the 21st-century business environment was profitability. Consequently, his main challenge was the identification of opportunities where the company could make profits.

GE's source of profitability under Welch was through the elimination of assets that were underperforming, cost reductions, and exploitation of the opportunities that were offered by the financial services (Grant, 2015). However, by the time Immelt took the helm of GE, all these sources of company's value had been exhausted. Therefore, he had to identify new opportunities. Although there was a poor outlook of the world economy, Immelt contended that top-line growth was going to be the ultimate source of the bottom-line returns.

GEs survival past the 20th century required identification of key sources of value that were consistent with the increasingly challenging business environment of the 21st century. According to Immelt, the four major global trends that would offer business value for GE included demography, infrastructure, emerging markets, and environment (Hellweg, 2007; Dhar, 2008; Grant, 2015). On demography, he observed that the aging worlds population created business opportunities for not only goods but also services that was needed by older persons (Sellers, 2015; GE, 2013; Immelt, 2015). Key among the sectors to offer the solutions was the health service. Additionally, growing population in the developing countries created opportunities...