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historically, several notable companies have encountered problems but were able regain their presence within their industry. Review the opening case: General Electric: the Quintessential Diversified Firm. Evaluate General Electric’s mix of businesses. Discuss how the combination of businesses makes sense. Be sure to note how GE’s board should assess management’s performance and what might be done to address some of GE’s problems.
Expert Answer
The company’s combination of businesses make sense because if one business fails or incurs losses, the losses are absorbed by other profitable businesses. For example in the first decade of 21st century General Electric’s finance business was doing very well. Infact it was the cash cow of the company. Till the year 2008-09. it was generating huge amount of money for the parent company. In 2008-09, GE Capital’s business took a big beating due to the mortgage crisis which engulfed the world. The business which was immensely profitable made the company bleed. GE as an group was able to absorb the shock as it was diversied and it’s other businesses made up for the huge losses incurred by GE Capital.
There are two key issues which Genearal Electric needs to handle. Being such a diversified group it needs to see that in what product market and businesses the firm should compete? How should the corporate headquarters manage those businesses? These are both very deep rooted questions and the GE needs to wieght many options to reach a conclusion which may suit it’s requirements with the prevailing economic environment and market conditions.
The corporate level strategies at this stage should be:
1. Market Development -making a foray in into new geographical areas.
2.Product development – develop new products or make improvement on the existing products.
3. Horizontal Integration – takeover of competitor’s business: movement in the same point in the value chain.
4. Vertical Integration – entering into those businesses which provide you raw materials/ inputs; acquiring your own vendors or distributors. It is in away moving up or down your value chain.
These decision would be key decisions to address some of the GE’s problems as with quick changing market scenario, the company also needs to align it’s strategy with changing times. A diversified comapany like GE needs to see that there is not too much dependence of one business so if rough times come, there is not much pain. It needs to quicky exit those businesses which are not profitable and there is not much scope of improvement in the future. At the same time it needs to keep scouting for businesses which are in some way related to it’s existing line of businesses and there could benefit in adopting them.
