DIVERSIFICATION

STRATEGY IN M-FORM
(INCONTEXT OF
GENERAL ELECTIC)

BY: Vaibhav Kumar

Raghav Arora
Amrit Routray
Aditya Kumar
Ayan maity

About the Company

General Electric Company or GE, is an American multinational conglomerate corporation
incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United
States. The history of General Electric Company is a significant part of the history of technology
in the United States. General Electric (GE) has evolved from Thomas Edisons home laboratory
into one of the largest companies in the world, following the evolution of electrical technology
from the simplest early applications into the high-tech wizardry of the early 21st century.
In 1896, General Electric was one of the original 12 companies listed on the newly formed Dow
Jones Industrial Average. After 120 years, it is the only one of the original companies still listed
on the Dow index.
The company has also evolved into a conglomerate, with an increasing shift from technology to
services, and with 11 main operating units: GE Advanced Materials GE Consumer &
Industrial, GE Energy, GE Equipment Services, GE Healthcare, GE Infrastructure, GE
Transportation, NBC Universal (80 percent owned by GE), GE Commercial Finance, GE
Consumer Finance, GE Insurance
The staggering size of General Electric, which ranked fifth in the Fortune 500 in 2003, became
even more evident through the revelation that each of the companys 11 operating units, if listed
separately, would qualify as a Fortune 500 company. GE operates in more than 100 countries
worldwide and generates approximately 45 percent of its revenues outside the United States.
Over the course of its 110-plus years of innovation, General Electric has amassed more than
67,500 patents, and the firms scientists have been awarded two Nobel Prizes and numerous
other honors.

Ability to sustain through capabilities

Leadership:
core competencies provide new market accessibility and VAS to
company, every other capability is imitable but not the leadership. Immelts motivational and
democratic leadership has successfully reshaped the bureaucratic culture into innovative culture
hence it now stands to its slogan of Imagination at work this differentiates it from other
companies. High level of motivation and high standard of quality providing ample opportunities
to employees which makes them productive. Much priority is now given in maintaining the
relationships with the third party suppliers as well as investors this is the major factor for GEs
success.

Human resource Development: high skilled training and development of employees

known as GE global learning has facilitated the high level and exceptional quality of
management within the organization. The structure of training of development process known as

GE branded enables structural change. GE leverages community colleges to get trained and
certified skills in advanced manufacturing within six weeks and more emphasis is paid on
graduating engineers. The expansion and motivation growth through innovation is cheaper and
more effective that buying from outside which is cheaper than buying from outside hence the
competency to improve the business model.

Organizational structure: Earlier the structure was based on portfolio of business units
which has now been changed according to the core competencies, GE had highly centralized
bureaucracy which is now broken up into individual units which facilitates cross cultural
integration. This increased the market value from 12 billion to 37 billion in 10 years. As it
complements the core competency easy communication and reducing delegation has helped GE
grow and gain an edge over that of its competitors.

Technology: Since GE culture has changed from six sigma the bottom line driven
organization to being an innovation driven. In response to growing demands, technical
innovations for instance processing mapping workouts well with companys image. It is G
commitment towards the environmental issues that they came up with the technology phrase as
Ecomagination and benefit customer and society at large. Approximately $100billion has been
spent on innovation in last 80 years.

Product portfolio: under the leadership of welch it has been highly seen that company
has leveraged its diverse product portfolio in the various fields of the business to create synergies
and achieve economies of scale and scope it is said no company has gone global so aggressively
than GE division managers acted like owners and familiar with customers need produced and
innovated products which satisfied them. GE established good relationships with governments
and leveraged their ties in international market such as in India and china. This improved its
brand value and reputation and gave them the advantage of cheap labor in India and china.

Customer service: Welch Era From 81 To 2001 focused on productivity and boundary
less structure for process improvement, further it adopted CAP change acceleration process
which lead to the road to customer impact which has now become the DNA for GE. The
continual investment in technology has enabled GE to develop new products and enter new
markets which executed through sequences of divestments and acquisitions in various sectors. It
created a differentiation advantage for the company by creating products focusing on customer
focus.

General Electrics business model consists of two parts, namely Industrial and Finance with its
Industrial wing contributing a whopping 90% to its overall business in 2015 while its finance
wing generating 10% of revenue for the company in 2015.
Brief about all these above mentioned sectors are given below to have a better understanding
about various businesses of GE and how they are performing as compared to one another.

Power/Water and Renew Segment: This sector contributed around 18% to the overall market
share of GE but in the last quarter of 2015, it went up to 29% as it contributed a profit of $1.65
billion with the overall revenue coming to around $5.5 billion.
Major products in this segment include gas turbines, in which GE is a market leader, engine and
generators, wind turbines, power generator services, steam turbines and so on. Revenue from
services in this sector was 63% whereas the rest 37% came from sale of equipment.
Demand driver for this segment include good demand of H technology turbines, good growth in
natural gas and strong demand for renewables.

Some of the concerns here are excess capacity prevalent in developed markets due to demand
variations which resulted in less than optimal use of machineries and equipment.

Oil and Gas Segment: This segment has been struggling due to fall in prices of crude oil in
recent years. Also, due to weaker oil prices and volatility in currency exchange which has a huge
impact on this industry has impacted it badly. But, it has still maintained steady profits and
contributed around $715 billion which ranks as the fourth highest contributor for GE in terms of
profits in last quarter of 2015.

Energy Management: This segment contributed around 4% to General Electrics 2015 last
quarter profit and stood at $33 million. Expectations are high from this sector as it is expected to
grow at a rapid pace in future and can be one of the growth drivers for the company in times to
come.
Also, the acquisition of Alstom should further escalate growth of this segment and is a great
boost for the company and would further enhance its reputation with GE already a global
technology leader in transmission, distribution and conversion of electric power.
A challenge for this segment can be slow movement and recovery of European economy which
forms 18% of total energy sector revenue for General Electric.

Aviation Segment: The global aviation industry is dominated by 4 prominent players. For
aircraft manufacturing, 2 big names which immediately come to mind are Boeing and Airbus and
they heavily dominate this area. As for engine manufacturing, GE and Rolls Royce are the forces
to reckon with.
GE aviation wing is giving handsome returns with a total profit of $1.5 billion in 2015 last
quarter which contributes to around 28% of their total revenue in that quarter.
Growth in this sector is expected due to lower fuel prices and growth in passenger traffic and
freight as well. Also, there is a high replacement demand of equipment which forms 40% of its
total revenue in this segment while the rest is formed by the actual growth of the segment.

Healthcare Segment: This segment includes investment in diagnostic equipment, money spent
on discovery of new drugs as well as research and development put in for disease research with
US forming 45% of total revenue of $938 million followed by Europe and Asia with 23% and
22% respectively.

Good growth and demand is expected in this segment due to advent of GE in developing markets
with great potential which are expected to provide robust results and increased profits for the
company.
Transportation segment: This segment provided a profit of $339 million dollars mainly
dominated by US market with a major chunk of it coming from their i.e. 68% revenues. It is
followed by a distant second rest of America market, Asian market and European market with
contributions of 13%, 9% and 4% respectively.
Growth in North America is largely expected due to superb demand in rail and locomotives. The
only disadvantage is the continuous disruption in global mining segment as a result of which,
there has been a decline in consumer expenditure which can have adverse effects on the
transportation segment of GE.

Appliances and Lighting: GE has sold this segment to Haier for a huge gain of $5.4 billion
even though it was giving good profits. Major products in this segment were refrigerators, water
heater, dishwashers etc.
The decision to sell this segment was made as GE did not consider it as its core strength. Also,
they did not have a favorable competitive position in market in regards to the same.

Capital Segment: It forms part of the financial services unit of GE and includes services like
commercial loans, commercial leases, commercial real estate, credit cards etc.
It was expected to be a growth driver for the company but they have recently decided to divest
from this sector as they do not consider this as one of their core strengths. They have already
started doing the same by initiating spin-off of Synchrony Financial into a stand-alone company
to reduce investments in non-core assets.

Acquisitions made by General Electrics (GE)

Company goes for acquisition due to the following reasons
Synergy: Companies goes for synergy to attain cost, operational synergies by using their
complementary strengths and weaknesses.
Diversification / Sharpening Business Focus: One of the major reasons that a company goes
for diversification is diversification through which a company can increase its market share.
Growth: Companies goes for acquisition as they can promote growth and increase the market
share through proper growth.
Increase Supply: Increase supply always helps in cost synergies as they helps to promote the
business through vertical mergers.
Eliminate Competition: By acquiring a company a company can also eliminate competition and
hence can improve on its market share and facilitate growth.

Please find below details of few of the acquisitions made by general electric (GE)
GE acquires Metem Corporation
GE acquisition of Metem Corporation a US based company to achieve operational synergies.
Metem Corporation is a whole manufacturing company of turbines. GE was facing a problem
with unnecessary emission from the turbine holes which was increasing cycle time and
decreasing efficiency. So making Metem Corporation in house, GE was able to reduce costs and
decreasing emission and hence increasing operational efficiency.

General Electrics acquires Alstom

GE acquisition of Alstom was one of the largest acquisition by general electrics .If was an
acquisition from the general electric power where general electrics utilized the assets of the
Alstom like plants and machinery and hence was able to achieve cost synergies. After making
Alstom in-house GE was able to realize cost synergies which make the power cheap. The
technology which Alstom used was advanced in nature so by using the asset of Alstom power
became more reliable and sustainable.

General Electrics acquires Bio-safe group

GE acquired Bio-safe Corporation an integrated cell bioprocessing system. Which has a very
good operational process which helps in cell therapy. Cell therapy is a technology which helps in
treatment in deadly diseases specially cancer. Many of the cancer patient got rectified after using
of the cell therapy. This advanced bioprocessing system has developed the cell therapy to a
greater extent. The percentage of cured patients and hence the bioprocessing system helped
General electric to provide more customer satisfaction which helped to increase the customer
base and hence the market share and henceforth the profit.

General Electrics is very close in acquiring Adwen

GE is looking to acquire Adwen Corporation which will be an acquisition of GE from the power
vertical and hence it will help GE to develop cost synergies and hence make energy production
more cost effective, reliable. And sustainable.

Merger
General Electric was set to take over Honeywell International Inc. this was set to become the
biggest merger in industrial history, when the European Commission barred it from taking place.
One of the biggest establishments in the world, General Electric was attracted by Honeywell's
aerospace businesses which fit neatly with GE's own businesses in the area, thus creating
excellent synergies for both companies. The merger had been passed by the United States
Department of Justice, with the recommendation that GE divest itself of Honeywell's military
helicopter unit, to protect the US military. However, approval from the EC was not so easy to
obtain
After conducting a thorough investigation, the EC and its Competition Commissioner Mario
Monti, determined that a merger between GE and Honeywell would create an extremely
powerful entity this consequently would have adverse effects on the competitive position in the

aerospace industry. The merger would give the two companies an enormous market share in the
common markets in which they operated. This also meant that they could bundle their
complementary products in future. This would harm competitors as well as customers by
creating a near monopoly market.
The EC demanded that substantial amount (amounting to almost $ 7 billion) be divested by the
two companies, and restrictions be imposed on the operation of the highly profitable GE Capital
Services arm. The demands were far more than GE was ready to concede, and the deal fell
through. The GE-Honeywell merger case marked the first time that transatlantic regulatory
authorities differed in their decision on a merger approval.

Honeywell
Honeywell produced a basket of aeronautical products including avionics, starter motors,
auxiliary power supplies, engine accessories, wheels, brakes, etc. it did not produce engines
however. It achieved market prominence through a series of mergers and acquisitions. More than
half of its revenue in 2001 came from the aeronautical business.
The merger
Analysts said that GE's offer for Honeywell was prompted by the fact that Honeywell's
businesses in aircraft engines, industrial systems, and plastics, were a good fit with GE's own
businesses.
When Welch found out in mid-2000 that Honeywell's board was on the point of deciding on a
merger with UTC, a rival of GE in the aerospace market, he lost no time in making a bid of his
own. Honeywell's management also felt that a merger with GE would be more desirable than one
with
UTC
and
aborted
talks
with
UTC
immediately.
As the merger talks were in progress, GE began exercising control over all aspects of
Honeywell's operations and Honeywell's management was expected to take approval from GE on
all important matters such as hiring new employees and major operational decisions...
Outcome
The GE and Honeywell merger was blocked by the European commission. Block was based on
concerns that bundling would flourish, causing competition to decline .later claims of bundling
were dismissed. Still the EC ruled that bundling was the primary reason to stop the merger.
CFM International

CFMI is a 50/50 joint company between GE and Safran Aircraft Engines (SNECMA).
On 24 September 1974 GE and SNECMA formed CFMI as a 50/50 joint venture.
On April 1979 CFMI launched its first engine "DC-8".
On March 1981 CFM56-3 became the sole engine for what would become Boeing
737Classic aircraft.
On 24 April 1982 CFM56 engine enters commercial service with Delta Air Lines.
On April 1984 United States Air Force(USAF) receives first re-engine KC-135R tanker
aircraft.
Today, USAF is still CFMI's largest customer.
On July 2008 GE and SNECMA renewed the CFMI partnership to the year 2040.
CFMI has sold more than 20,000 aircraft engines by 2009.

SNECMA
SNECMA produced M56. SNECMA specialized in manufacturing fan, gearbox, transmission,
exhaust and low pressure turbine engines. They were more into engine components.

SYNERGY
CFMI combined and tried to obtain synergy between GE and SNECMA by sharing the
production. GE's engines were manufactured and assembled at Evendale, Ohio. While
SNECMA's engines and components were manufactured and assembled in Villaroche, France.
CFMI manufactured engines both at Ohio and France depending upon the functionality of the
engine. And the final assembly was done at Evendale, Ohio. And the final product was branded
under CFMI. Some components were manufactured by Avio of Italy.
Initially, CFMI faced some import and export issues, but latter they were able to tackle it and
resolve it. In the present market, CFMI is the largest player and has the highest market share.

Conclusion:
One of the most diversified conglomerate in the world GE has been on the top of the revenue
chart in the fortune 500 list of companies the major reason for the same are its capabilities and
management, the future sightseeing, the kind of diversification strategies it has formulated in
integrating different businesses to create synergies out of the given resources. Tis all have led to
the emergence of the behemoth in the market that it is right now.