general electric
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General Electrics Presentation Brief View to Diversification
( U N ) Re l a t e d D i ve r s i f i c a t i o n 0 6 /11/2013
Julian Kimora, Scott Lichtenstein, Erdem Tokmakoglu
2
ContentsG E
GE Overview and History1
AviationA
2 GE Core Competencies and Divisions
HealthcareB
Relatedness3
GE CapitalC
NBCUniversalD
Conclusions4
3
GE’s PAST to PRESENT (GE website)
A p p e n d i x 2
51926
X-Ray
121990
Tomography
21900
Steam Turbines
31905
Bond& Share
111987
GE Capital
11892
Foundation
81938
Boxbob Locomotive
142013
GE Sells
Completely NBC
91953 Lexan
Accidentally Developed Coating
71935 First
Garbage Disposal
41919
Radio Corp. of America
Formed
101986
GE Reacquires
RCA, Forms NBC
61932 Credit
Foundation
132 0 0 4
Boing 787
4
KEY INFORMATION (Yahoo Finance)
G E O u t l i n e
Founded: 1892
Headquarter:Fairfield, Connecticut,
CEO: Jeffrey R. Immelt
Global Locations: more than 160 countries
Employees: 305,000
Total Revenue: 147,359,000,000 USD
Operating income(EBT): 17,406,000,000 USD
Net income: 13,614,000,000 USD
O ne of the 12 original Dow Jones Industrial Average members
Various M&As have shaped GEs organisational structure
5
0 $
40 $
80 $
120 $
160 $
200 $
2008 2009 2010 2011 2012
Sales/Revenue Gross Income Research & Development EBITDA
ANNUAL FINANCIALS (Marketwatch)
A P P E N D I X 1
Total Assets
717.26B2012
Total Liabilities
588.79B2013
Total Equity
128.57B2013
Net Operating Cash Flow 31.33B
B i l l i o n s
6
ORIGINAL BUSINESS AREASO R I G N
Original business areas were focused on the generation and application of electricity.
Power Plants Transformers Electric Locomotives
X-ray Tubes Household Goods
7
MEET THE KEY PEOPLE Pe o p l e
1981 CEO
Jeffrey Immelt
CEO 2001 - Present “worlds best CEO“ (Barron),
Restructured GE, selling unrelated
assets and focusing on core businesses
-However, GE stock is over
40% lower than when he took over
Jo h n Welch
Chairman & CEO 1981 - 2001 Joined GE as chemical engineer in 1960
Increased market cap from $13 bil. to several hundred billion
Streamlined operations and reduced bureaucracy
”Manager of the century” (Fortune Mag. 1999)
8
EXTERNAL STRATEGIES THAT CREATE CORE COMPETENCES
A B O U T G E
Few Corporate Layers Where the ideas are born
Only 4 Corporate layers Very few corporate staff
Therefore more differentiation
Power Differentiation,
Portfolio Investments, Value Creation,
“Aggressive acquisition &
expansion strategy” Regularly acquire firms in times of economic downturns
which improves customer values
Technical Leadership Promoting the work
Innovation %6 Investment on Research
Over Revenue
9
CORE COMPETENCIESA B O U T G E
Innovation Cultivation in them of an insatiable desire to learn, to stretch and to do things better every day.
GE uses its capabilities in R&D to continue to produce some of the world’s most innovative industrial products
Tax Strategies Corporate Profit Accounting to reduce tax liabilities (Scott 1977)
G E famously paid no US income taxes in 2010 despite earning a profit of $5.1 billion in the country that year.
The company employs 375 lawyers in the largest tax department in the world” (AP)
Corporate Organisation Design Strategies The global recruitment and nurturing of worlds best people (GE 2011)
GE spends over $1 billion annually on management training (WSJ) “Session C” management training and performance review every year
Financial Economies of Scale Cross-business synergies from debt coinsurance effects
In a moderating growth operating environment and greater uncertainty,we believe investors will gravitate to GE's late-cycle exposure, high-margin services mix, emerging markets strength, and attractive earnings visibility/consistency,’ Dray wrote in a note to investors.” (AP 2006)
10
RelatednessG e n e r a l I n fo
Corporate Relatedness
The application of core competencies to different business areas
All of GE’s divisions share their core competencies of innovation, management training, and tax strategies
Operational Relatedness
The sharing of skills and inputs across different business areas
GE’s divisions sometimes require different inputs and skills
We will analyse the Operational Relatedness of a few key divisions
11
GE CORE SECTORSA p p e n d i x 3
1. Finance
2. Power & Water
6 Transportation
7. Aviation
8. Home &Business Solutions
3. Oil & Gas
4. Power & Water
9. Energy Infrastructure
A. Powering
B. Curing
D. Building
5. HealthC. Moving
Premier Infrastructure
Company
12
GE SEGMENTS (CSI MARKET DATA)
A N A LYS I S
Total Revenue
$ 147,469M2012
46.0397.9675.608
18.29019994
741215241
28299
%31
%5%4
%12%14
%5
%10
%19
Power & Water Oil & GasEnergy Management AviaConHealthcare TransportaConHome & Business SoluCons GE Capital
Most margin over revenue – Energy Infrastructure
Million USD
13
GE AVIATION (GE website)
G E FA I LU R E
I n 1917, GE was granted a US military contract to build the first superturbo charger for airplane engines for the US entry into WWI
By the beginning of WWII, all US Air Force planes were using GE engines
GE built the America’s first jet engine in 1942
I n 2012, GE Aviation had revenue of $19.994 billion, which is 14% of GE’s total revenue
Today, a plane flying with GE engines takes off every two seconds somewhere in the world
14
GE AVIATION RELATEDNESS (GE website)
S e c t o r s
R&D Skills First turbocharged & jet engine Advanced engineering, long design period
Revenue: $19.994 Million 14% of GE’s total revenue in 2012
ManufacturingBoth machinery and aircraft engines require complex products Manufacturing focuses on precision and durability rather than volume Currently Boing 787’s engine supplier
Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s
Conclusion Co r p o r a t e & O p e r a t i o n a l l y re l a t e d
15
GE HEALTHCARE (GE website)
G E FA I LU R E
GE Healthcare began as “GE X-ray Corp” in 1926 when GE merged with Victor Electric, a manufacturer of X-ray tubes
I n the 1950s and 1960s the company began manufacturing pacemakers and patient monitoring equipment
In the 1980s, GE Medical began investing heavily in MRI and CT machines
N ame changed to GE Healthcare in 2001
2 0 1 2 reve n u e o f $ 1 8 . 2 9 b i l l i o n , w h i c h i s 1 2 % o f G E ’s t ot a l reve n u e
16
GE HEALTHCARE RELATEDNESS (GE website)
S e c t o r s
R&D Skills Biology research and biomedical engineering are different than electrical and industrial engineering
Revenue: $18.29 Million 12% of GE’s total revenue in 2012
ManufacturingA higher number of product categories sold than power generation machinery and more units sold per category
Inputs B i o m e d i c a l p ro d u c t s re q u i re s m a l l a n d i nt r i c a t e p a r t s , s o m e o f w h i c h a re e l e c t r i c a l
Conclusion S o m ew h a t o p e r a t i o n a l l y re l a t e d
17
GE CAPITAL (GE website)
G E FA I LU R E
In 1905, Electric Bond Share Co. is established to finance small utility companies
In 1932, GE Credit Corporation is founded to provide credit for families purchasing GE appliances
Had branched into credit cards, personal loans, mortgages, savings accounts, and other areas of consumer finance by the time the name was changed to GE Capital in 1987
Currently also involved in energy derivatives trading, real estate, and asset-backed securities issuing in 55 countries with over 50,000 employees
Had $46 billion in revenue in 2012, which was 31% of GE’s total revenue.
18
GE CAPITAL RELATEDNESS (GE website)
A p p e n d i x 2
R&D Skills Financial market analysis and economic intuition are very different than electrical engineering
Revenue: $46 Million 31% of GE’s total revenue in 2012
ManufacturingNo manufacturing is required for GE Capital
Inputs H u m a n c a p i t a l i s l a rg e s t i n p u t
Conclusion Not o p e r a t i o n a l l y re l a t e d
19
GE TRANSPORTATION (GE website)
A p p e n d i x 4
R&D Skills First turbocharged & jet engine Advanced engineering, long design period
Revenue: $5.608 Million 4% of GE’s total revenue in 2012
ManufacturingHig h - h o r s e p owe r d i e s e l - e l e c t r i c l o co m ot i ve s w h i c h s h a re g e a r a n d e n g i n e t e c h .
Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s
Conclusion Co r p o r a t e & o p e r a t i o n a l l y re l a t e d
20
GE POWER & WATER (GE website)
A p p e n d i x 5
R&D Skills Advanced engineering, long design period
Revenue: $ 28,299 Million 19% of GE’s total revenue in 2012
ManufacturingWa t e r p u r i f i c a t i o n sys t e m s , p u m p s , va l ve s , f i l t e r s a n d f l u i d h a n d l i n g e q u i p m e nt fo r i m p rov i n g t h e p e r fo r m a n ce o f wa t e r, wa s t ewa t e r a n d p ro ce s s sys t e m s , i n c l u d i n g m o b i l e t re a t m e nt sys t e m s a n d d e s a l i n a t i o n p ro ce s s e s , f l o a t i n g u s e s i m i l a r t e c h n i c a l s t r u c t u re w i t h e n g i n e s .
Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s
Conclusion Co r p o r a t e & o p e r a t i o n a l l y re l a t e d
21
GE OIL & GAS (GE website)
A p p e n d i x 6
R&D Skills First turbocharged & jet engine Advanced engineering, long design period
Revenue: $15,241 Million 10% of GE’s total revenue in 2012
Manufacturingf l o a t i n g p ro d u c t i o n p l a t fo r m s , co m p re s s o r s , t u r b i n e s , h i g h p re s s u re re a c t o r s , i n d u s t r i a l p owe r g e n e r a t i o n a n d a b ro a d p o r t fo l i o o f e q u i p m e nt u s e s i m i l a r t e c h n i c a l s t r u c t u re s w i t h e n g i n e s a n d p u m p s .
Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s
Conclusion Co r p o r a t e & o p e r a t i o n a l l y re l a t e d
22
GE HOME & BUSINESS SOLUTIONS (GE website)
A p p e n d i x 7
R&D Skills First turbocharged & jet engine Advanced engineering, long design period
Revenue: $7,967 billion 5 % of GE’s total revenue in 2012
ManufacturingBoth machinery and aircraft engines require complex products Manufacturing focuses on precision and durability rather than volume Currently Boing 787’s engine supplier
Inputs E n g i n e s re q u i re co m p l ex e l e c t r i c a l co m p o n e nt s
Conclusion O p e r a t i o n a l l y re l a t e d
23
NBC UNIVERSAL 1 (Forbes)
G E FA I LU R E
GE founded RCA in 1919 as a subsidiary to manufacture radios
RCA launched NBC in 1926 as America’s first broadcast radio network in order to sell more radios
GE sold its stake in RCA in 1932
GE repurchased NBC in 1986
24
NBC UNIVERSAL 2 (Forbes)
G E FA I LU R E
GE bought 80% of the movie studio Universal for $5.9 billion in 2004 and merged it with NBC to create NBCUniversal
GE sold 51% of NBCUniversal to Comcast in 2011 for $6.5 billion
GE sold the remaining 49% to Comcast in 2013 for $16.7 billion
NBC had dropped from the number 1 US network in the 1990s to number 4 at the time of the sale
25
NBC UNIVERSAL RELATEDNESS (Forbes)
G E FA I LU R E
GE NOT operationally related at all
Skills and inputs for hit TV shows and movies very different than for heavy industrial manufacturing (creativity versus engineering)
Sale to Comcast driven by changes in the entertainment industry
Growing power of cable: In 2011, 90% of US homes had cable TV subscriptions and spent twice as much time watching cable as watching broadcast TV (Nielson)
Rise of the internet: Netflix has 30 million US streaming subscribers and Hulu has 4 million (NY Times)
26
BCG Matrix A n a l ys i s
Oil & GasAviation
Power & Water
Transportation
Home & Business
Low High
Market Share
Low
High
Mar
ket G
row
th
Healthcare
GE Capial
27
CONCLUSIONL AS T W O R D S
“One-stop shop’ for developing countries (NYT 2005). To achieve this objective, Jeff Immelt formed vertical cross- business teams in Healthcare, Energy, Water, and Rail that focused on company-to-country relationships in developing countries (GE 2004, 2005)”.
Mainly focus on related areas.
GE capital is not related but the
most profitable.
GE should be careful not to fall into “?” or “Dog”
Immelt is trying to refocus GE on
their core businesses
THANK YOU For your attention!
QUESTIONS &
ANSWERS Go ahead. Don‘t hesitate.
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