Strategic Management 479
Case Study Assignment 2
Case Study Assigned: General Electric after GE Capital
Overview
This is your case study assignment . For this assignment, you will need to access the full-length case study you have been assigned at the top of this page within your Case Studies eText. You are required to read and analyze this case study. Case study should be between 6-8 pages long not to exceed 10 pages
Your analysis must:
- List in bullet format:
Resources
Capabilities
Core Competencies - Discuss and describe the business strategy currently being used by the company (minimum of 1 page)
- Provide a total of four findings of fact; 1 from the following four functional areas of business:
Management
Marketing
Finance or Accounting
Business Ethics - Provide a full justification and recommendation for each finding of fact (minimum of 1 page each)
Attached is the case study for the assignment, use update and recent references.
FRANK T. ROTHAERMEL CHRISTOPHER K. ZAHRT
General Electric after GE Capital April 11, 2015, 5:35 A.M. The treadmill flashed “cool down.” Jeffrey Immelt, chief executive offi-cer (CEO) of General Electric, thankfully slowed to a brisk walk. He could now give CNBC his full attention. The commentator was discussing the previous day’s announcement of the divestiture of GE Capital, the financial arm of General Electric (GE). Since 2008, when GE Capital brought the con-glomerate to a near death experience, investors had been clamoring for GE to pare back its financial activities. Immelt spent the next seven years scaling back GE Capital, but the business unit continued to weigh on GE’s stock price. (See Exhibits 1A through 1C for financial performance data.) Immelt finally decided it was time for more drastic action. As a graph of GE’s stock price flashed on the screen, he smiled. His decision had been the right one.
A History of Executive Leadership at General Electric CHARLES COFFIN In 1883, a syndicate of businessmen from Lynn, Massachusetts purchased control of the American
Electric Company and renamed it the Thomson-Houston Company. Among the investors was a Quaker shoemaker named Charles Albert Coffin. During the previous 10 years, his successful management of C.A. Coffin and Company had generated a widespread respect for his executive abilities.1 These abilities would eventually lead Thomas Edison to remark that Coffin was “the most remarkable busi-ness man I have ever known.”2 Coffin was selected to lead the new enterprise, and under his leadership the company grew rapidly.
One of the most significant innovations that Coffin introduced at Thomson-Houston was the incor-poration of the subsidiary United Electric Securities Company. During the 1880s, electricity was a new and unproven technology, and it was difficult for fledgling utilities to attract investment. Therefore, Thomson-Houston (and, to a lesser extent, Edison General Electric Company) began accepting the securities of the fledgling utilities as payment for its electrical equipment.3 The purpose of the United Electric Securities Company was to consolidate these securities and market them to investors.4, 5
The electrical industry experienced a period of innovation and rapid expansion throughout the
1880s, during which the number of discoveries, and corresponding patents, multiplied. It became apparent to both Coffin and the management of Edison General Electric Company that neither com-pany could offer utility customers a comprehensive line of electrical generation and distribution products without infringing upon the patents of one another.6 Therefore, on April 15, 1892, the two companies merged to form the General Electric Company.
Coffin’s first test as president of the new enterprise came quickly. A worldwide financial crisis
combined with the bursting of a bubble in railroad stocks triggered a stock market crash in May of 1893. In the fallout of the crash, termed the Panic of 1893, approximately 575 banks either failed or temporarily suspended operations, nearly 16,000 businesses failed, and the unemployment rate spiked to an estimated 8.09 percent.7, 8, 9 It was the worst depression the nation had yet experienced.
The Panic of 1893 had a pronounced effect on General Electric. As John Broderick, a member of GE
management during the depression, recalled, “Orders shrank by 75 per cent. Of its 8,000 employees, 5,000 had to be laid off and there was not enough work to keep the remaining 3,000 occupied full time.”10 Plummeting orders were not GE’s only problem. A liquidity crisis made banks unwilling to lend, and the market for the stocks and bonds GE had accepted from its customers disappeared. In order to cover short-term obligations such as payroll and interest payments, Coffin sold a block of illiquid securities to a syndicate of large GE shareholders. GE recognized a loss of $8 million on the transaction (over 20 percent of its market capitalization), but the company was saved from default.11
Although the Panic of 1893 had graphically demonstrated the risk of holding large amounts of secu-rities, GE’s financial activities continued to expand. GE founded the Electrical Securities Corporation in 1894, and the Electric Bond and Share Company in 1905.12,13
As the financial markets stabilized after the Panic, GE continued to augment its line of electrical
products. In 1895, the company began producing x-ray equipment, and in 1901 its first production steam turbine was placed in operation.14
Coffin not only introduced innovative products, he also implemented innovative processes within GE. In 1899, at the behest of Edwin Rice, GE established the first industrial research laboratory in America.15 Coffin recognized that the continued success of GE depended upon the quality of its man-agement, and he focused the company on the development of future business leaders.16 Coffin was also well ahead of the times in his treatment of hourly workers (implementing profit sharing, pension and insurance programs) during his tenure.17
Charles Coffin retired his chairmanship in 1922. During his tenure, the market capitalization of
the General Electric Company grew from $35 million to $184 million.18 The portfolio of products that he assembled (steam turbines, railway products, x-ray equipment, generation and distribution equip-ment, and financial services) would remain with the company through the present day. Furthermore, the internal policies Coffin developed provided the foundation for GE’s success throughout the 20th century. These accomplishments led Jim Collins, author of Built to Last and Good to Great, to name Coffin the greatest CEO of all time.19
OWEN D. YOUNG Charles Coffin was succeeded as chairman of the board by Owen D. Young. An attorney, Young
first came to GE’s attention when he won a lawsuit against the corporation. Charles Coffin was so impressed by the way Young argued his case that Coffin eventually offered Young the position of general counsel.20 Young rose rapidly at GE. He helped create the Radio Corporation of America (in which GE held a controlling interest in 1919) and served as its chairman until 1929.
Young became concerned about the public perception of GE’s ownership interests in public utili-ties, and against Coffin’s advice, Young divested the Electric Bond and Share Company in December of 1924.22 However, this did not signal the end of GE’s financial operations, for the corporation began managing the assets of its pension fund around the same time.23 Furthermore, in 1932 the GE Credit Corporation was formed to allow consumers affected by the Great Depression to purchase GE appli-ances.24 GE Credit Corporation would become GE Capital.25
Young was among the first to develop “a conception of management, not as an agent of its owners,
but as a trustee of all groups vitally interested in industry-owners, employees, and the general public, including customers.”26 Decades later, this concept would come to be known as “stakeholder analysis.” This concept was proven out by the expanding benefits offered to GE employees.
While GE had marketed an electric toaster as early as 1905, household appliances had been a small
part of its overall business. This changed radically under Young, who placed heavy emphasis on the development of consumer appliances.27 As complementary goods, appliances created more demand for electricity, which in turn created more demand for GE’s industrial electrical generation equip-ment. During Young’s tenure, appliances became nearly as big a part of GE’s business as industrial products.28
PHILIP D. REED An electrical engineer and patent attorney, Philip D. Reed was Young’s chosen successor. Reed was
named chairman of the board in 1939. However, Reed temporarily resigned his position in 1942 in order to support the war effort. Both he and GE President Charles Wilson served on the War Production Board.
GE proved vital to the war effort. Its largest contribution was the supply of propulsion and auxiliary
turbines to the Navy and Merchant Marine.29 It also produced radar and radar-jamming equipment. Furthermore, GE supported the Manhattan Project through the supply of instrumentation and power distribution equipment.
GE applied its expertise in steam turbines to the production of aviation turbo-superchargers. These
devices allowed airplane engines to develop significantly more power at high altitudes. Altogether, GE produced over 162,000 turbo-superchargers during the war.30 Due to similarities between the turbo-supercharger and the jet engine, General H. H. Arnold selected GE to perform top-secret development work on the experimental Whittle jet engine.31 GE successfully demonstrated a prototype jet engine in March of 1942, and test flights of a P-59 Airacomet took place in October of that year.32
After the cessation of hostilities on August 15, 1945, Reed, who had recently returned to his chair-manship, began to chart GE’s postwar strategy. He furthered GE’s atomic aspirations in 1946 by win-ning the operating contract for Hanford Engineer Works, the Manhattan Project’s Pu239 (plutonium) production facility. GE also began using IBM and UNIVAC computers for data processing.33 GE’s post-war slogan became “Progress is our most important product,” and it sponsored CBS’s “General Electric Theater” hosted by Ronald Reagan.34
Under Reed, GE experienced its first large scale strike on January 15, 1946. Approximately 200,000
union employees represented by the United Electrical, Radio and Machine Workers of America (UE) struck both GE and Westinghouse.35 The strike was settled nine weeks later, with union employees winning an 18.5 cents-an-hour wage increase.36 GE granted significant hourly wage increases in 1947 and 1948 as well.
Philip Reed retired in 1958 and became a director of the Federal Reserve Bank of New York.37
During his tenure, General Electric revenues increased from $396 million in 1939 to over $4 billion in 1957.38
RALPH J. CORDINER Ralph Cordiner, according to his successor Fred Borch, started with General Electric as a salesman
and “always remained one.”39 Under Cordiner, GE became the second largest defense contractor in the nation, supplying the armed forces with everything from jet engines to plutonium to interconti-nental ballistic missile (ICBM) components.40 Cordiner also invested heavily in atomic research and computers.41,42
Cordiner’s greatest strategic move was decentralizing GE into four principle divisions: consumer
products, aerospace and defense, capital goods, and industrial products.43 Cordiner broke these divi-sions into segments that would “not [be] too big for one man to get his arms around.”44 The managers of the segments were given a large amount of autonomy so that senior executives were “freed up” to focus on strategic planning.45 Cordiner remarked that “GE has no place for committees as decision-making bodies. A committee moves at the speed of its least informed member and too often is used as a way of sharing irresponsibility.”46
Cordiner spread his gospel of decentralization through the establishment of the GE Management
Development Institute in Crotonville, NY.47 Cordiner retired on December 20, 1963. During his tenure as CEO, revenues grew to $4.8 billion, but profits “barely moved.”48, 49
FRED J. BORCH Fred Borch joined General Electric as an auditor in 1931.50 By 1954, Borch had worked his way up
to vice president for marketing services, which brought him into close contact with Ralph Cordiner.51 In this position, his writings, along with those of fellow GE manager J.B McKitterick, helped to redefine how managers viewed marketing.52 In the early postwar era, marketing had focused upon telling cus-tomers they needed a certain product. McKitterick and Borch argued that the job of the marketer was first to determine what the customer needed and then design products around those needs.53, 54 The “marketing concept” described by McKitterick, Borch, and others revolutionized the field of marketing.
Upon becoming CEO in 1963, Borch spent heavily on commercial jet engine development while
continuing Cordiner’s investments in nuclear power and computers.55 GE was a relative latecomer to the computer market, and its attempts to reach technical parity were costing the business $100 million a year.56 Borch finally decided to sell GE’s computer unit to Honeywell in 1970. However, his investments in jet engines were successful, and during his tenure annual revenues doubled from $5 billion to $10 billion.57 Borch retired in 1972.
REGINALD H. JONES Like his predecessor, Reginald “Reg” Jones began his career with GE as an auditor, starting in 1939.
Jones advanced through general management positions, becoming the chief financial officer (CFO) in 1968. His handling of the sale of the GE computer unit to Honeywell resulted in his promotion to CEO in 1972.58
During his tenure, Jones moved GE towards materials, natural resources, services, and transporta-tion. These businesses moved from 20 percent of GE’s profits in 1968, to 53 percent by 1980.59 Jones also focused on international growth.60
Perhaps the most salient feature of his career was his engagement with government. In addition to
meeting frequently with Congress, he also served as an advisor to presidents Nixon, Ford, and Carter.61 His engagement with leaders in both industry and government lead to his selection as the country’s most influential businessman in a 1979 U. S. News & World Report survey.62
Under Jones’ leadership, GE’s revenues more than doubled, and net income increased even more
dramatically, rising from $572 million to $1.4 billion.63 Jones retired in 1981, turning the company over to his protégé.
JOHN F. WELCH, JR.
John “Jack” Welch, a junior engineer chafing under the GE bureaucracy, submitted his resignation in 1961 after only a year on the job.64 His manager, Reuben Gutoff, convinced him to stay. However, impatience with bureaucracy would be one of the hallmarks of his career.
The company Welch inherited from “Reg” Jones was a ponderous bureaucracy consisting of 350
businesses organized into 43 business units.65 Welch decided to rationalize GE by focusing on lines of business that were “number 1 or number 2” in their market. Ideally, these businesses would also be capital intensive, which would serve as a barrier to competitor entry.66 Under the mantra of “fix, close or sell,” Welch sold 117 businesses representing 20 percent of GE’s assets in his first four years as CEO.67
Welch’s plan also called for cost savings through significant workforce rationalization and quality
management. “Of the 112 people who left the GE payroll, 37,000 were in businesses we sold, but 81,000 people—or 1 in every 5 in our industrial businesses—lost their jobs for productivity reasons,”stated Welch.68 This aggressive downsizing earned him the derisive nickname “Neutron Jack” (after the neu-tron bomb because he left the buildings, but removed the people). Welch implemented the “Six Sigma” quality program in 1995, and by 1997 it was responsible for $320 million in savings.69
To further increase earnings, Welch went on a spending spree, making 993 acquisitions worth over $130 billion.70 His largest purchase was the $6.28 billion acquisition of RCA, an electronics company that owned the National Broadcasting Company (NBC). The deal, announced in December of 1985, was the largest non-oil company merger in U.S. history.71
Over 400 of Welch’s acquisitions were made by GE Capital, the financial services arm of General
Electric. The Welch era was a very profitable time in finance, with the S&P 500 increasing 1,433 per-cent.72, 73 This encouraged Welch to aggressively grow GE Capital’s balance sheet. By 2001, GE Capital had assets of $490 billion, making it the largest non-bank financial institution in the world.74 That amount of growth “almost seems surreal,” observed Welch in 2001.75
During Welch’s tenure, GE’s market capitalization increased from $14 billion to $410 billion, making
it the largest company in the world.76 While re-focusing the corporation on industrial products and services, he added broadcast television to the mix and grew GE Capital into a financial colossus. Upon retirement, he stated, “You should measure my success eventually by how well GE does in the next five years. If I did my job right, they won’t be saying it was a one-man show.”77
JEFFRY IMMELT The son of a middle manager in GE Aviation Jeff Immelt, began his career at GE after receiving an
MBA from Harvard in 1982. He held positions in Plastics, Appliances, and Healthcare before being named Welch’s replacement. 78, 79
Following a superstar like Welch was no easy task. Immelt observed, “The trick, if you follow some-one famous, is that you’ve got to drive change every day without pretending anything was ever wrong. It takes confidence and it takes time.”80 Immelt decided that GE needed to focus on its industrial roots, and he drove this change in four distinct ways: divesting non-core businesses, acquiring industrial companies, prioritizing globalization, and increasing spending on research and development (R&D). (See Exhibits 2A and 2B for changing product and geographic scope.)
Immelt made his first significant divestiture in 2004, when he spun $2.8 billion of GE’s insurance
businesses off into Genworth Financial.81 The next year, additional insurance holdings worth $6.8 bil-lion were sold to Swiss Reinsurance.82 GE Plastics was sold in 2007, and the sale of NBC Universal was completed in 2013.83 GE’s iconic appliance line was sold to Electrolux for $3.3 billion in 2014. In all, Immelt estimates that he has sold 65 percent of the company he inherited from Welch.84 (See Exhibit 3 for an organizational chart.)
As Immelt was unwinding positions in non-core businesses, he was also strengthening GE’s indus-trial capabilities through a string of targeted acquisitions. In 2002, he purchased the wind turbine manufacturing assets of Enron Wind for an estimated $400 million.85 Immelt has spent $14 billion acquiring companies specializing in oil and gas production equipment.86 The collapse of oil prices in late 2014 demonstrated how sensitive this new business unit was to fluctuations in commodity prices. In October of 2014, CFO Jeffrey Bornstein observed, “Orders in this space are very volatile, and we continue to see some big projects pushed to the right.”87
Immelt initiated the largest acquisition in GE history with the April 30, 2014 announcement of a
$13.5 billion enterprise value offer for the energy businesses of French company Alstom. Substantial negotiations with the French government lead to a modified deal in which GE acquired the gas turbine and international steam turbine businesses, but formed joint ventures with Alstom and the French government in the grid, nuclear power, and renewable energy business units. 88, 89 The deal was expected to close in mid-2015, pending approval by the European Union (EU). Boasted GE Power & Water president Steve Bolze, “We’ll be bigger in Europe and bigger all over the world.”90
The Alstom acquisition was the most visible manifestation of Immelt’s globalization strategy. In
2011, Immelt remarked, “I am never going to apologize for globalizing GE—90 percent of our aircraft engines leave the country; 100 percent of our gas turbines leave the country; 50 percent of our loco-motives leave the country. That is where the customers are.”91 By 2014, Immelt had grown interna-tional revenue to 55 percent of total revenue, up from 30 percent in 2001.92
An outgrowth of Immelt’s globalization efforts has been a new paradigm he terms “reverse innova-tion.” In the past, GE’s international strategy had been to sell the same products to both developed and emerging technologies. However, GE has found that products tailored for developed nations are often irrelevant to emerging economies due to the vast differences in culture and infrastructure.93 Vijay Govindarajan, who served as GE’s chief innovation consultant, states, “The goal of reverse innovation is to create products or services that address the unmet needs of emerging market populations that are not already our customers. We are making more-affordable products for a new set of customers who will never buy our existing offerings.”94 Through the reverse innovation process, products tailored to a specific locale can create new global markets. One such example is a hand-held ultrasound device developed for the Chinese market that has been embraced by doctors in the United States.95
In addition to “reverse innovation,” Immelt has also enhanced GE’s traditional strength in research, increasing R&D spending from 3 percent of revenues under Welch to 5 percent since 2011.96 GE Chief Technology Officer Mark Little calls his company’s research operations the “GE Store,” where managers can shop for solutions to technical problems.97 The shear variety of technologies that GE is involved with allows for considerable research cross-pollination. For example, carbon composites developed for jet engines are being considered for windmill blades and generator components.98 Goldman Sachs analyst Deane Dray observes, “G.E. is set up to transfer technologies from older businesses to all of their growth platforms.”99
Immelt’s largest research push has been the development of what he terms the “Industrial Internet.”
The Industrial Internet refers to networked industrial equipment connected to a sophisticated data analytics platform called Predix. The Industrial Internet will allow GE to offer customers extended service products around its capital equipment such as locomotives and jet engines. Immelt remarks, “In the world I live in, the industrial world, the notion of how analytics can be used, well, people find it to be beautiful, desirable, investable. They understand it inherently right away.”100
IMMELT AND GE CAPITAL Immelt became CEO four days before the September 11 terrorist attacks, and his tenure has been
plagued by numerous black swan events. “When I started,” remarked Immelt, “I could never have for-cast so many tail-risk events hitting GE: 9/11, Enron, Hurricane Katrina, Fukushima, the global finan-cial crisis.”101
The financial crisis had the greatest impact on GE. Welch and Immelt had built GE Capital into the
nation’s fifth biggest lender.102 However, with the 2008 collapse of Lehman Brothers and the ensuing credit crunch, GE Capital’s approximately $550 billion in assets became a huge liability. The bottom came on March 9, 2009, when GE shares reached an intra-day low of $5.73, a price not seen since 1991.103,104 GE had cut its dividend for the first time since the Great Depression, and it would lose its AAA credit rating three days later. 105 For the second time in its corporate history, GE’s very existence was threatened by its vast financial holdings.
Shoring up GE Capital required approximately $51 billion in FDIC debt guarantees and a $12 bil-lion “liquidity backstop” from the Federal Reserve.106 In the aftermath, the government deemed GE Capital a “systemically important financial institution.” This designation exposed GE to greater regula-tory scrutiny.
Investors clamored for Immelt to pare down GE Capital, and by early 2013, he had reduced
GE Capital’s loan portfolio by over a third.107 In November of 2013, GE announced the spin-off of Synchrony Financial, the portion of GE Capital that dealt with store brand credit cards. The IPO val-ued Synchrony at $19.1 billion.108 However, GE stock remained stagnant, and it was clear that more drastic action was required.
Therefore, on April 10, 2015, GE announced that it would divest the bulk of GE Capital by 2018.109 GE expected to receive a $35 billion dividend from GE Capital as part of the divestiture and announced $50 billion in share repurchases.110 GE stock rose 11 percent on the day of the announcement.
GE Business Units as of Spring 2015
GE CAPITAL: $42.7B REVENUE IN 2014 Immelt’s plan to dramatically scale back GE Capital would leave this division holding only $90 bil-lion in assets.111 These assets would primarily consist of aircraft leases and financing for GE’s capital equipment and health care customers.112 GE Capital Aviation Services (GECAS) owns one of the largest commercial airline fleets in the world, which helps drive sales of GE aviation engines. 113
POWER & WATER: $27.6B REVENUE IN 2014 Power & Water is GE’s largest industrial business.114 Power & Water is organized into six busi-ness units: Power Generation Products, Power Generation Services, Nuclear Energy, Renewable Energy, Distributed Power, and Water & Process Technologies.
Power Generation Products includes the generators and steam turbines that have been a part of
GE for more than a century, as well as gas turbines. Power Generation Products will become much larger should EU regulators approve the Alstom acquisition. Power Generation Services encompasses the services such as maintenance and installation that GE offers around its turbines and generators.
GE Hitachi Nuclear Energy is an alliance formed in 2007. It can trace its roots back to at least
1957, when GE’s Vallecitos power plant became the first privately financed nuclear power plant to be connected to the commercial grid.115 Today, GE Hitachi Nuclear Energy offers reactors, fuel rods and services. Immelt does not see a lot of growth for this business unit, stating, “It’s just hard to justify nuclear, really hard. Gas is so cheap and at some point, really, economics rule.”116
Renewable Energy encompasses three main product lines: Wind Energy, Solar Energy, and Energy
Storage. Wind Energy is built upon the 2002 acquisition of Enron Wind and offers a variety of wind turbines. Solar Energy offers support equipment such as inverters, financing for solar projects, and has a partnership with manufacturer First Solar.117 GE is justified in expecting solar power to be a growth industry. In 2014, 34 percent of all newly installed electrical generation capacity was solar based.118 Energy Storage offers solutions built around its sodium nickel chloride Durathon batteries. Due to the variable output of wind and solar power, batteries play a key role in renewable energy. George Crabtree, a senior scientist at Argonne National Laboratory, observes, “What’s holding back solar and wind isn’t their availability but the fact that the technology to generate renewable energy has leapt far ahead of the capacity to store and deploy it round the clock as needed.”119 Immelt is enthusiastic about GE’s “advanced” battery business, stating, “We think the market will be huge.”120 However, GE is likely to encounter competition from the likes of Tesla and China’s BYD. 121, 122
Distributed Power business unit produces portable electrical generating plants powered by gas turbine or gas reciprocating engines.
Water & Process Technologies offers water treatment products, such as boiler feed water treatment
and waste water purification. While Immelt claims that his water technology acquisitions “stink,” he softened that judgment by observing, “When I’m talking to power companies, when I’m talking to biofuel companies, when I am talking to oil and gas companies, they all buy equipment in water tech-nology, so I like the space.” 123,124
AVIATION: $24.0B REVENUE IN 2014 GE Aviation produces both commercial and military jet engines. Additionally, it offers a variety of
services to customers such as contract maintenance and data analytics. Its competitors include Pratt & Whitney (a division of United Technologies) and Rolls Royce.
The LEAP engine became the best-selling jet engine in GE history before it had even entered com-mercial service, garnering nearly 8,000 orders worth over $80 billion as of early 2015.125 Developed by CFM, a joint venture between GE and France’s Snecma, the LEAP incorporates many cutting-edge tech-nologies, such as 3D carbon fiber in the engine’s compressor blades and casing and ceramic matrix composites used in the high pressure turbine shroud.126 Michael Kauffman, a GE manufacturing executive, stated, “We are pushing ahead in materials technology, which gives us the ability to make jet engines lighter, run them hotter, and cool them less. As a result, we can make the engines, and the planes they’ll power, more efficient and cheaper to operate.”127
Of all of the advanced materials used in the LEAP, the 3D printed fuel nozzle appears to have
received the most publicity, and for good reason. As the MIT Technology Review observes, “The deci-sion to mass-produce a critical metal-alloy part to be used in thousands of jet engines is a significant milestone for [3D printing] technology.”128 3D printing, also called additive manufacturing, has the potential to revolutionize the field of manufacturing by allowing complicated parts to be easily fab-ricated. As Randy Kappesser, composites technology leader with GE Aviation, observes, “GE clearly views additive manufacturing as a game-changing technology . . . By 2020, well over 100,000 end-use parts in GE/CFM engines will be produced by additive manufacturing. That’s a huge change and, we believe, a competitive advantage.”129 However, as of 2013, there was not enough additive manufacturing capacity in North America to meet GE’s demand.130
OIL & GAS: $18.7B REVENUE IN 2014 The Oil & Gas business unit manufactures products for extraction, transportation, and conver-sion of oil and natural gas. While the business unit is over 20 years old, most of its growth has been through acquisitions made during Immelt’s tenure. Immelt has done more that $14 billion of oil and gas acquisitions since 2007.131 Prominent acquisitions include Dresser, Lufkin, and John Wood plc.
HEALTHCARE: $18.3B REVENUE IN 2014 The $9.5 billion all-stock acquisition of Amersham plc in 2003 was one of the largest purchases of
Immelt’s tenure.132 Amersham, located in the UK, offered a line of contrast agents that was a natural compliment to GE Healthcare’s imaging products.133 As a result of the transaction, the headquarters of GE Healthcare was moved to the English village of Chalfont St. Giles.
GE Healthcare’s products are organized into nine profit and loss (P&L) segments. The Surgery P&L
includes mobile imaging equipment. Detection & Guidance Solutions offers x-ray imaging technol-ogy. The MR P&L is responsible for magnetic resonance imaging equipment. Molecular Imaging and Computed Tomography offers CT (computed tomography) and PET/CT (positron emission tomography/ computed tomography) imagining equipment. CT scans, also known as CAT scans, use x-rays to create section views of the body. In positron emission tomography, a radioactive “tracer” is injected into the body. The tracer collects in different organs, allowing them to be imaged. The Molecular Imaging and Computed Tomography P&L also includes nuclear medicine. The Ultrasound P&L offers ultrasound imaging equipment. According to Thierry Leclercq, president and CEO of Life Care Solutions, his P&L offers “patient monitors that track patient events and vital signs, diagnostic cardiology technologies, anesthesia delivery systems, ventilators, infant warmers and incubators, and more.”135 The Healthcare IT P&L offers clinical software systems, and the Global Services P&L offers hospital operations con-sulting. Finally, the Life Sciences P&L offers products and services that primarily support the bio-pharmaceutical industry. Biopharmaceuticals are the fastest growing class of drugs, accounting for a quarter of all drug revenue.136,137
GE Healthcare has three Strategic Areas of Focus. The first, Make an Impact on Neurological
Disorders (MIND), is a $500 million research effort focusing on neurological disorders.138 Tackling Cancer is the second strategic area. GE Healthcare launched a $1 billion cancer research initiative in 2011.139 Finally, GE Healthcare has also committed spending $2 billion to advance health care applica-tions of the Industrial Internet.140
APPLIANCES & LIGHTING: $8.4B REVENUE IN 2014 The Appliances & Lighting business unit will become much smaller when the $3.3 billion sale of
the appliance business to Swedish appliance maker Electrolux closes in 2015. However, the core light-ing business will continue to employ around 13,000 people in more than 100 countries.141 Lighting will also play a part in GE’s Industrial Internet strategy through its evolving Intelligent Cities plat-form. A similar networked street lighting technology is saving the city of Nice, France over $8 million annually.142
ENERGY MANAGEMENT: $7.3B REVENUE IN 2014 The operations of the Energy Management business unit can be summarized by its mission state-ment: “We make energy safer and more useful through our ability to transmit, distribute, and convert electricity.”143 Energy Management has five main businesses. Digital Energy applies digital monitoring and predictive analytics to electrical generation, transmission, and usage. Energy Consulting provides worldwide consulting services. Industrial Solutions offers motor controllers, uninterruptible power supplies (UPS) and electrical distribution equipment. Power Conversion offers a line of motors, genera-tors, and converters. Intelligent Platforms focuses on industrial automation and data analytics.
TRANSPORTATION: $5.7B REVENUE IN 2014 GE Transportation produces locomotives, marine and stationary diesel engines, transportation soft-ware, and drilling machinery. It controls between 60 and 70 percent of the U.S. locomotive market, though half of its locomotive production is for the international market. 144, 145 Its transportation soft-ware includes Movement Planner, which increases the efficiency of rail networks, and Trip Optimizer, which functions as a locomotive “auto-pilot,” increasing locomotive fuel efficiency. Since its introduc-tion on freight railroad CSX Transportation, Trip Optimizer software has saved the railroad nearly 12 million gallons of fuel.146
Immelt’s Decision General Electric’s stock surged 11 percent on the announcement of the divestiture of GE Capital.147
Unwinding GE Capital’s mammoth balance sheet would provide Immelt with an unprecedented amount of cash. How, he wondered, could this cash be best deployed to resuscitate GE’s stock price?