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How Decades Of Bad Decisions Broke GE

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  • From 2007 to 2017 their total revenue decreased by $50 Billion.
  • General Electric has many different operating segments such as aviation, healthcare, power, renewable energy, digital, additive manufacturing, venture capital, finance, lighting, transportation, and oil and gas.
  • Over the past few years, GE sold several of its iconic business such as Universal Studios, NBC, GE appliances and many more. GE is struggling to keep up with all its operating segments; therefore, they need to streamline and focus on improving their best operation segment.

This analysis of General Electric will include:

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  1. The assertation that not having a focus strategy and having hands on too many businesses made GE lose focus on the core business. For instance, General Electric began by making light bulbs and electric motors, however over the years they started purchasing companies that did not share the same mission or goals.
  2. General Electric’s debt is related to their vertical structure and centralized decision making. Immelt, the previous CEO, made poor business decisions such as investing in companies that ultimately put them in debt.
  3. GE failed to acclimatize to their changing environment. In the beginning, GE was operating under a simple, stable environment; however, as they purchased more companies that environment became increasingly complex and unstable. Analysis of the Problems. General Electric needs a better focus strategy to restructure Daft (2008) defines a focus strategy as when an organization concentrates on a specific regional market or buyer group.

In the case of General Electric, they did not utilize this strategy effectively. GE created a diverse portfolio, but forgot about their core businesses which are power, aviation, and healthcare.

Flannery, the new CEO of the company, stated that the goals of the company are to make GE more agile, easier to operate and squarely focused on its core strengths. Which illustrates they have learned from their previous failure to distinguish what kind of business they want to be in the long term. Although their acquisitions were profitable at the time of purchase, several turned out to be detrimental in the long run.

For instance, when the 2008 economic crisis occurred, GE owned a mortgage company and their stock plummeted because the company was regarded as a bank, rather than an industrial company (Egan, 2017). GE needs to steer their ship in the right direction by focusing on the few profitable businesses that they own. Companies that are able to adapt to low-cost, differentiation, or focus strategies are more profitable than the company that doesn’t adapt, as is the case for GE (Daft, 2008). However, it appears that there is hope that GE can recover from this situation under the new CEO, as he has clear goals and strategies which will help the company be successful.

GE’s vertical structure and centralized decision-making did not help them in the long runGeneral Electric is one of the biggest companies in the United States and employs over 300,000 individuals. Thus, the use of a tall hierarchy structure is unavoidable.

Further, they practice centralized decision making which means all decisions are processed by high level managers or the CEO (Daft, 2008). This practice proved problematic as the people making the decisions have little oversight or safeguards against poor judgement. For instance, the previous CEO, Immelt’s poor decision-making regarding investing in fossil fuels caused them to lose $9 billion (Egan, 2017). If the CEO sought-out input from other managers and employees, they might not have gone through with that deal and perhaps instead they would invest that money in solar power technology. GE’s new CEO Flannery vowed to improve the company culture by being more open and transparent. Specifically, by seeking input from employees and other managers. GE will be dropping most of their operating segments and focusing on only three.

This gives them the opportunity to restructure the company and utilize a different model such as a hybrid structure. GE would benefit from adopting this structure which embodies a combination of characteristics and varied approaches that can be tailored to meet the business’ needs (Daft, 2008). The inherent flexibility of this structure will allow them to adapt quickly.

GE needs to react and adapt better to environment uncertainty When operating under stable and simple environment there is low uncertainty. Accordingly, when there is low uncertainty there are few departments, the structure is formal and centralized, and has a clear hierarchy (Daft, 2008). GE was operating in that environment when they were producing only light bulbs and electric motors. However, as they progressed and acquired more businesses, the environment of the organization changed. GE’s new CEO is trying to simplify the company as he believes the overcomplexity has hurt the company (Egan, 2017). Therefore, he is selling most of their businesses, so they can get back to the simple and stable environment in which they thrive. One of the main tasks of an organization in a complex and unstable environment is to have extensive planning, accurate forecasting and the ability to quickly respond to changes (Daft, 2008). When operating several businesses, the company must respond quickly to environmental changes. Immelt and his team were not able to adapt or make decisions fast enough and the organization nearly went bankrupt as a result.

Additional Concepts Related to the Article

This article provided a wealth of information on how GE’s bad decision making cost them. However, they did not share any information about the competition. Initially, GE was a giant in their industry, but over the years they shrunk significantly. I believe another reason for that is the competition. Companies in all industries feel pressure keep the cost and price as low as possible, to attract more customers (Daft, 2008). Consequently, GE spending a lot of money investing in other companies did not help them keep their costs down.

I believe GE should have focused on only a few of the businesses they owned and instead of purchasing more companies they should have invested that money in innovating and improving their existing business. Due to GE having hands on too many businesses, they had a tremendous amount of competition in every industry. It is the top executives’ responsibility to think about how an organization can respond to competition and cope with environmental changes. GE’s last CEO did not recognize that, as they kept adding industries to their portfolio. Instead of competing with competition and continually innovating, they bought some of the competition. GE’s new CEO needs to focus on the core of the business, innovation and embracing new technology.

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