General Electrics Transformation from Process Analysis
This section is focused on how to analyze processes within a company. Every company wants to be as productive and efficient as possible. One way to do this is to evaluate ones own company and the processes each company has and find places to improve the income of the firm, whether that be through cutting costs or increasing revenue. A company can cut costs is through improving or reengineering their processes.
Six Sigma
According to there website, Six Sigma is designed to “improve business processes by utilizing statistical analysis rather than guesswork” (Six Sigma). Six Sigma combines six key aspects in order to help improve a company’s business processes: define, measure, analyze, improve and control. Many companies use these management methods to improve their business processes by following the defined steps and training provided by Six Sigma. One of these companies is General Electric.
General Electric
Jeffrey Immelt was the CEO of General Electric from 2001-2017. During his time, one of his main accomplishments was how he moved GE from a “classic conglomerate to a global technology-driven company” and navigating the company through a volatile time period that included a recession (Harvard Business Review). The first step to this transformation was to evaluate which businesses had been growing more slowly than others, which they found to be the non-technical and non-industrial businesses. After evaluating these areas Jeffery decided to divest these businesses. He defined the problem that their business scope was too broad, and measured the growth of the industries they were in. After doing this, he analyzed if it would be profitable to pivot there company into another direction and this lead to an improvement in GE.
One of the main findings that Jeffery had was that the company did not seem to have one voice. All of its separate business units did not connect well to each other and no supervisor could connect them. This lead to the businesses being very scattered and cost inefficient since there would be a large amount of repetition and inefficiencies among the businesses. By divesting in certain companies, it freed up capital for GE to make improvements to its business efficiency. They were able to put $4 billion into developing an analytics software and machine-learning capabilities which enabled them to drastically improve their manufacturing efficiency.
In the early 2000’s GE was mainly an domestic based company. However, they went through an analysis to determine how they can grow the revenues of the company. Due to the growth of the developing world and other international countries, GE found that it would be extremely profitable to expand its global presence. In 2011 they launched a group to expand their international presence: “The Global Growth Organization”. Since the launch of this program, GE now operates in over 180 countries and in 2017 the revenue generated from countries outside the U.S. accounted for nearly 60% of all of GE’s revenue.
Another change GE made was a pivot from “industrial to digital industrial”. They saw a shift in the markets and an increased demand for software embedded in machines. GE did research into this field and created GE digital and launched themselves into this field. GE digital now accounts for a large amount of the companies revenue each year.
These are only a few of the many transformations that GE has gone through since Jeffrey Immelt took over as CEO. Jeffery used the strategies from Six Sigma, along with others he had created, to constantly evaluate their business processes. This enabled GE to stay ahead of the game and invest more in areas which had been profitable while divesting in areas that were low growth and seemed to be costing the company money. This is just one key example as to why it is necessary to always analyze the processes of a company.
Sources:
1)https://www.6sigma.us
2)https://hbr.org/2017/09/inside-ges-transformation
As I can see from the text, GE detected a problem in the layout. They were wasting to much money because the physical arrangment of their units (and operations) was a disaster. By fixing this they eliminated a waste in the material flows and also in the inventory handing, as well as the waste in work flow. This decreased their cost, but they went further and they also increased their revenues by expanding themself to other countries. So they focused on cost and revenues in order to improve the process. But, these two factors are not the only ones that could help them to improve.
Customers are the main factor here. They did a good job, and the results can tell it, but they could have gone further by analyzing their customers, their needs. Maybe they weren´t offering them a unique value. Maybe they didn´t know what their needs were. So, in order to even improve more, they should analyze their customers and try to figure out what they will want in the future, so they can give it to them before any other competitor.
GE’s example of process improvement seems to cover all the aspects of process improvement (process structure, customer involvement, capital intensity, resource flexibility) that we have studied in class. The disconnect between the different GE business divisions meant that their process structure was weak as there was no streamlined way of communication. By divesting in some businesses, the CEO was able to improve the communication and layout of the business and thus, the process structure as well. Through divesting in some of its businesses, GE was not only able to improve its process structure but was also able to free up some of its resources. This resource flexibility meant that GE could utilize these newly freed-up resources to explore new business opportunities, such as global expansion. Moreover, due to GE’s over-diversified business model, it was also investing more capital in some of its business divisions than it was required to invest which resulted in lower capital and labor productivity. By improving its process, GE became more cost-efficient and invested its capital in businesses which would give it a higher return. Another way through which it improved its process was by conducting market research and including the opinions of the customers into its process improvement. As the blog post states, GE found out that there was “an increased demand for software embedded in machines.” As a result, it focused its resources and capital into digitalizing its products to meet the demands of the market. Therefore, by focusing on all aspects of process improvement, GE was able to establish itself as a global power in the corporate world.
As evident from General Electric’s recent stock decline and consideration for being dropped from the Dow Industrial Index, the company is due for a major makeover. General Electric is restructuring its business units by consolidating its wide range of operations and business entities into its major profit producers. The market for the products and services that GE provides has grown in sophistication, and companies that specialize in these areas are gaining the competitive advantage. For example, General Electric has been a power producer for the last thirty years, however it is reducing its power segment because of the expectation that market demand for heavy-duty gas turbines will fall from 40 gigawatts to below 35 gigawatts by the end of 2017 (https://www.fool.com/investing/2018/01/29/5-things-you-need-to-know-about-general-electric-c.aspx). GE currently spreads its company resources over a broad spectrum of business operations. I agree with Zach that “all of its separate business units did not connect well to each other and no supervisor could connect them.” This lead to the businesses being very scattered and cost inefficient since there would be a large amount of repetition and inefficiencies among the businesses. Zach also mentions GE as “The Global Growth Organization” and how General Electric believed it had superior resource flexibility and that expanding globally would grow revenue. After GE’s Global Growth Organization initiative, the company seemingly expanded beyond its capacity to produce quality products. I am interested to see if John Flannery will continue with Jeffrey Immelt’s Six Sigma strategies or will pivot to another process analysis method. Early indications show that Immelt will emphasize slashing costs and focusing on optimizing operations by separating them, which will require unraveling intertwined operations, pensions and debts. This is the complication with a highly scaled and complex process structure. Analysts and investors are crunching the numbers around whether a breakup would make the individual business parts more valuable than the whole. “The real core approach here is to make sure that these businesses can flourish in the decades ahead and that they have the right capital structures and investment resources to do that,” Mr. Flannery told analysts on Tuesday (https://www.wsj.com/articles/for-ge-a-breakup-is-no-quick-fix-1516209062).
I find the proactivity of the CEO Jeffery Immelt at GE very impressive. Not only did he immediately recognize our rapidly growing technology driven society, but he also strived to globalize the company and reach new possible demand. Managing such an immense firm like GE calls for severe attention to detail as any decision could prove drastically fatal. Immelt’s ability to capture the voice of GE and increase the company’s international revenues should have generated a great reputation for the company. However, Immelt has not tackled other pressing issues at the company. GE’s stock has dropped significantly over the past year and may be removed from the Dow. This is a direct result of poor cash levels, unsuccessful divisions, and a recent investigation by the SEC. Yes, Immelt’s actions have provided GE with more international cash flows, but Immelt has failed to fix domestic problems that are tearing the company apart. His tactics to analyze and attempt to correct the processes at GE have been proven to be insufficient to real drive the company back towards success. A manager like the CEO needs to account and make choices for all parts of a company in order to accomplish a successful business strategy.
See: http://money.cnn.com/2018/01/31/investing/ge-dow-jones-stock/index.html
I very much agree with Andy’s point. I think the strides GE made with some of Immelt’s adjustments to their processes were certainly steps in the right direction, but as Andy commented, this is simply not enough. This exemplifies a point we discussed in the first class, how the supply chain and operations is just one aspect of a company’s overarching corporate strategy. They still need to work on their financing and marketing divisions within the company, seeing as their stock hit a six year low two weeks ago. Recently, the company cut its dividend in an attempt to raise funds, in turn alienating investors. With declining share prices, the outlook for GE is looking worse and worse. Analyst Andrew Obin of Bank of America Merrill Lynch noted that lower demand in North America is a continuing struggle as operators are choosing lower cost third party suppliers, described as “good enough,” versus GE’s higher quality and more expensive products. Clearly, this points to a bigger issue in GE’s place in the market and, as well as these implementations may help their internal supply chain, their weakening role in the industry coupled with declining optimism from investors shows that GE needs to reevaluate themselves on a broader scale, not solely within the company.
Source: https://www.cnbc.com/2018/01/22/general-electric-is-falling-again-after-bank-of-america-downgrade-nears-16-a-share.html