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Critical Strategic Analysis of One Business Unit Within General Electric

by Onwuasor Obianuju
R1511D1136036

Strategic Analysis: Tools & Techniques (ST4S38-V1)


Tutor: Apostolos Pistolas
University of South Wales
Business School

30 JULY 2018
CONTENTS

Introduction 3
Brief Strategic Position of the Aviation Division 3
Strategic Position of the Aviation Unit 4
Resource Audit 4
Evaluation of the Value Systems and Resource of the Aviation 6
Division
GE Aviation Value System 7
Resource/Competence Model 7
Value Chain 8
Product/portfolio mix within the aviation unit of GE 10
using the BCG Matrix
Analysis and evaluation of future strategic 11
growth in the aviation unit using GE-Mckinsey matrix.
Potential of future strategic growth 12
Recommendation 13
Reference

FIGURES
Figure 1. Aviation Unit; Income and Profits 5
Figure 2. Resource Model of the Aviation Division 8
Figure 3. Porter’s Generic Value Chain for the Aviation Division 9
Figure 4. BCG Matrix for Aviation Division 10
Figure 5. GE-McKinsey Matrix for Aviation Division 11
Figure 6. Ansoff Product/Market Matrix for Aviation Division 12

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INTRODUCTION

This report seeks to examine and evaluate the Aviation Division, a single business unit
in General Electrics. It also analyses General Electric strategic position, resources and
competences, value system, product and service listing and its future direction for
proposed growth in the Aviation Unit of GE. Choosing to study the Aviation unit in
General Electric was tasking because at first glance, GE doesn't operate like your
regular company. General Electric is a large multinational conglomerate operating in the
aviation, renewable energy and power, venture capital, oil and gas, transportation etc
GE uses the differentiation strategy in the way various divisions and business units sells
varying products and service making it difficult to analysis SBUs as one a mammoth
struggle. Jeffrey Imelt, CEO of GE in 2001 kick started a strategy to simplify the
businesses in General Electric. His antecedent, John Flannery also continued this
strategy when he took over as CEO in 2018 (Thomas,2017). Part of the simplification
strategy started by Imelt involves revolving its finance unit which in turn leaves a
dynamic roaster for SBUS. The GE/Mckinsey Matrix is on of the famous ideas that have
been proposed by numerous consultants for strategic planning. General Electric is a
copy book of multinational corporation strategic planning and corporate distinction as it
has no money or debt problem. The Aviation Unit of General Electric was selected for
this study in view of the fact that it is one of the most prosperous of all the GE divisions.

STRATEGIC POSITION OF THE AVIATION UNIT


The healthcare, aviation and renewable energy divisions are arguably the most
sucessufl divisions in General Electic. They make up a total of 70% of the companys
operating profit as at the fourth quarter of 2015. These units have greater prospective
for profitablity and growth as compared to the other business units. The aviation division
of business is one of GE's fastest-growing segments with operating profit of $1.571
billion in the fourth quarter of 2015, which is 28% of the company's total. They are
principal providers of jet and turbine engines and related machineries in the world. Their
dynamic manufacturing processes comprises of efficient methods of production,
engines that utilize lower fuel consumption and prolonged maintenance and warranty

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periods. The GE aviation unit’s products are used in commercial and military
organization when manufacturing aircrafts, fighter jets, tankers and bombers. The
Aviation unit is strategically positioned for growth and further increase in sales, as its
method of differentiation from competitors makes it possible to achieve superior pricing
and profitability. (Investopedia, 2017).

RESOURCES AUDIT
Underlining acumen from various component analyses of both General Electric and the
Aviation Unit served as a base for efficient resource audit. The resource audit
comprises of the main resources and strengths of the Aviation Business Unit within
General Electric, its strategic positioning and differentiation as compared to other SBU
and the logical value sets employed by staffs and the whole organization as a whole
which serves as a guide for various situations within the GE value chain
(https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&uact=
8&ved=2ahUKEwi48firpcncAhXKRMAKHQgeBa0QFjAEegQIChAI&url=http%3A%2F%2
Fwww.businessdictionary.com%2Fdefinition%2Fvalue-
system.html&usg=AOvVaw3wrVPxsZgqvJeakyYOcBBe,2017).
Connor (2011) in his book, “Internal resource audit for strategies- a proposal” explained
that audit cannot simply be done by following step by step functional approaches. Audit
should be carried out after gathering knowledge from the value chain of the
organization, assessing both assets and resources and must be taken into
consideration holistically as opposed to be isolated. Instead of attempting an imitative or
broad audit resource, this report seeks out easily identifiable points of differentiation and
a value system unique to the aviation business unit.
The aviation business division as at 2016 generated a total of 16% of sales for General
Electric with a profit of 20% and a margin of 20.75% as compared to other business
units. The figures below show aviation income and profit as at 2016 and 2017. General
Electric Aviation’s division generated an income of 26.3 billion USD and a profit of 6.1
billion USD in 2016 and an income of 13.34 billion USD and a profit of 2.872 billion USD
by the first half of 2017. The next most prosperous and profitable business unit was the

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power sector with an income of 26.8 billion USD and 4.979 USD in profit in 2016 and an
income of 11.843 billion USD and 1.714 USD in profit by the first half of 2017

Figure 1. Aviation Unit; Income and Profits(General Electric,2017, p.6)

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GE Aviation has been frontline for the successful revamp of the US aviation industry
since its shut down after 9/11 making them top players globally in that market. General
Electric currently exports over 20 billion USD yearly (General Electric, 2017,p.3).
General Electric Aviation has its main manufacturing plant is located in Muskegon, MI.
Its strategic location is ideal for global manufacturing and distribution. They made jet
engines with the 3D printing effecting in engines which where more fuel efficient as
compared to competition. As pioneers of 3D printing and manufacturing, they are
vertically integrated and employ the use of additive tools. These additive tool reduced
parts by 30% and completions within a 50% cycle time (General Electric, 2016, p.17).
They also pioneered the use of turbo-electric propulsion; a new idea for revolutionary
aircrafts. GE kept its finance unit focused on aviation regardless of spinning it off on
other units. From aforementioned, it’s clear to see that the Aviation unit is gem in the
crown of value chain system in GE.

EVALUATION OF THE VALUE SYSTEM AND RESOURCES OF THE AVAITION


UNIT RESOURCE
The GE mission for research and development is one of the greatest resource and
competency fo the Aviation business unit. An estimate of 5 billion USD has been spent
on developing new technologies and patents (General Electric, 2016, p.8). another
resource for the GE Aviation unit is the use of addictive parts and 3D printing which cuts
the use of numerous piece by 30%, and further improves fuel efficiency above the
standards set by the industry. Over 1 billion USD has been invested in the
implementation and manufacturing of jet engines. By the use of this new technology,
over 800 parts were removed from the production of the Advanced Turbo Prop Engine
(General Electric, 2016, p.9)
The utmost resources/skill in the Aviation unit of GE are their new products, which
would help increase their market share and customer base. They use of additive tools
and 3D manufacturing would be the key feature of these new products. There would be
an inclusion of digital solutions for their clientele; these solutions would be merged when
manufacturing of the jet engines for aeroplanes and fighter jets. This advancement in
technology is perfectly positioned to drive sales. The GE Capital business unit will

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provide the finances needed to implement this new developments and would add to the
profitability of the GE Aviation unit (General Electric, 2016,p.13)

THE GE AVIATION VALUE SYSTEM


Innovation is the most important value present in GE. This innovative trait roots itself
from GE’s culture that’s places constant emphasis on steady and continuous innovation
and change. GE strategic plan for change includes being aligned with United States
government stand on placing first preference towards ventures that concern the country.
By doing so considerable standards are set down on its manufacturing plants in the
United State: a strong centre of the operations of its manufacturing facilities. Jack Welch
the CEO of GE from 1981-2001 spearheaded the culture of change and innovation
practised in GE today. As state in the GE Annual Report 2016, ‘GE is an epoch where
actual primary surmise about the global economy are constantly being tested. An epoch
where trust in MCN is very low that the most valued form of strategy would be to be
continuously evolving. GE is in the forefront of organisations that encourage change
and innovation. In the future GE plans to become the most prominent long-standing
American Multi national conglomerate. They plan to be a stateless global company,
which would both, exist both today and in the future. They pride in the fact that they are
an American organization that’s is constantly winning worldwide (General Electric, 2016,
p.3). Smart innovation stands as the number one value in GE. In 2000, 61% of revenue
were generated from the global market while 70% was for the United States market.
There has been an average growth of 5-10% annually as compared to previous years
(General Electric, 2017,p.3).

RESOURCE/COMPETENCE MODEL
In the GE Aviation unit as at 2017, no clear signs of weakness were found. GE has in
its umbrella over 3000 patents in which many of them are in association with the
Aviation unit. The Aviation unit has its physical structures, manufacturing plants and
resources situated in the US soil. The Aviation unit also utilizes additive manufacturing
and is been financed by a financing company within the aviation division so purchases
for the aviation division are easier. Last but not least, the most important intellectual

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resource GE posses is their human resource, making it priority to employ skilled work
men who embed the innovative culture.

AVIATION Intellectual capital Physical Resources Financial Resources H.R


RESOURCES OVER 3000 PATENTS ADDITIVE MANUFACTURING 2ND MOST PROFITBLE UNIT EMPLOYS
……………………………….PLANT SITUTATED IN THE US INNOVATIVE STAFFS

Figure 2. Resource Model of the Aviation Division

Aviation unit has been able to attain copybook stability between its resources and
competencies, finances and technological developments and its manufacturing
prospects and HR. GE Aviation unit have support from over 180 countries including
china, which is no 1 in technological advancement. This unit is of higher ranker than its
competitors, its creating its niche and increasing its market share by being continuously
innovative and changing.

VALUE CHAIN
Porter (2001) propounded in his book “competitive advantage”, that a value chain that
would change business inputs into outputs in a way that they are able to attain greater
gain than the original cost of actually creating those outputs. The figure below
represents a generic value chain for organizations. This value chain consists of 3
elements namely; primary elements (ie.. inbound logistics, operations, outbound
logistics, marketing and sales, services), support activities (procurement, human
resource management, technological development and infrastructure) and margin.

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Figure 3. Porter’s Generic Value Chain for the Aviation Division

The primary activities are linked to the creation/manufacturing, sales and maintenance
and support of the Aviation unit products. This encompasses every detail as it relates to
the aviation’s unit manufacturing plants to its additive 3D manufacturing processes and
its neat reputation as becoming the leaders in aviation technology. It doesn’t leave out
the sales of its jet engines worldwide and post services after purchase of these engines
The support activities support the primary activities. The dotted lines in the diagram
above shows that every secondary role supports the primary role. This secondary
activity includes human resource management where innovative culture is key trait for
recruitment, to procurement principles, technological developments, research and
development. Any part of the aviation unit that assist in creation of the jet engines. GE
Aviation unit has a proven track record in the manufacturing of innovative aviation
technologies and an exceptional dedication to research and development. All these
activities put together amounts to the GE legacy.
Margin is the amount of value you can create, minus the cost of creating that value. So
the greater the value and the lower your cost, the higher your margin would be.

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PRODUCT/PORTFOLIO MIX WITHIN THE AVIATION UNIT OF GE USING THE BCG
MATRIX

Morrison and Wesley (1991) prosed a model called the BCG Matrix, This matrix was
created to easily evaluate the strategic position, potential and strength of business
brands and its portfolio. It specifies how the unit is placed to produce an over reach of
growth and future profits.
The aviation unit of GE will have superior position in the global aviation industry by
providing a combination of LEAP engines, advanced turbo prop, additive 3D
manufacturing and a rise in acquisition of military jet fighters.
The figure below depicts the Aviation’s Unit products and portfolio prospects in the BCG
Matrix

BCG MATRIX Leap engine, Advanced Turbo


GE Aviation Unit Prop engine, Additive 3D
manufacturing and acquisition
of military jet fighters

High

Low
GROWTH RATE
Low High
GROWTH RATE
Figure 4. BCG Matrix for GE aviation division

GE Aviation unit works in corporation of other business unit within GE. For example,
they created an aero derivative engines called LM9000, which could be used by the GE
oil and gas unit for power generation and gas and oil compression. Through an initiative
called, “Fast Works”, they were also able to reduce cycles and increase investments by
40% and 30% respectively (General Electric, 2016,p.23). They GE Capital Aviation unit
permits the financing of sales for its clientele and adds vertical refinement to the aviation
unit. For that reason, The aviation unit can create agreements and contracts for post
service of their products. Its use of additive manufacturing has launched research and
developments to create 3D printing technology potentials. GE reports over the past 2

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years across all divisions in the industry, the aviation unit always accounts for a large
part of the company’s over all profit. The Aviation unit of GE represents all the traits that
GE stands for in terms of its innovative culture, research and development and in-depth
financing.

ANALYSIS AND EVALUATION OF FUTURE STRATEGIC GROWTH IN THE


AVAITION UNIT USING GE-McKINSEY MATRIX.

In 1970, Mckinsey & Company in agreement with General Electric created a nine cell
portfolios a means for strategically separating GE’s business units. The fig below
represents the GE-Mckinsey Matrix for the Aviation’s Unit.

GE/McKINSEY MATRIX AVIATION GROW HOLD


GE Aviation Unit DIVISION
High
GROW HOLD HARVEST
Medium

HOLD HARVEST HARVEST


Low

High Medium Low


INDUSTRY BUSINESS UNIT STRENGTH
ATTRACTIVENESS

Figure 5. GE-McKinsey Matrix for the Aviation Unit


This matrix has similarities with the BCG growth share matrix as they both map the
SBUS on a grid and its position in the industry. However the GE-McKinsey improves
upon by adding industry attractiveness and SBU strength where market growth rate
represents the industry attractiveness and market share as the SBU strength. From the
figure above the Aviation Unit of GE depicts that the unit has a very high market growth
rate and high market share. The Aviation Unit is capitalized, integrated and a world-
class innovator of aviation products.

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POTENTIAL OF FUTURE STRATEGIC GROWTH
Johnson et al (2014) asserted that, in order for an organization to move forward, it has
to eliminate myopic views of its future and think long term while performing analysis of
its business portfolio periodically. Customer appreciation of products and profitability of
products is an easy way of measuring innovation. These are constant practices in GE.
GE has been able to place itself to be pioneers of additive manufacturing in the aviation
industry whereby reducing the amounts of parts used for production and increased
efficiency.

ANSOFFS PROTECT/BUILD: PRODUCT


PRODUCT/MARKET MATRIX GE CAPITAL AVIATION DEVELOPMENT:
GE Aviation Unit SERVICES ADDITIVE MANUFACTURING
& 3000+ PATENT
Existing MARKET DEVELOPMENT: DIVERSIFICATION:
CHINA LEAP AND ADVANCE TURBO
MILITARY MARKET PROP ENGINE
New
Existing New
MARKET PRODUCTS

Figure 6. ANSOFF PRODUCT/MARKET MATRIX FOR AVIATION UNIT

GE/Mckinsey matrix is one of the most widely used tool for analyzing future growth
viewpoint. The use has remained constant over the last 30 years since inception
(Proctor and Hassard, 1990).
Pascale and Athos(1981) propounded that, the combination of both GE/Mckinsey
Matrix and Ansoff Product/market Matrix for strategic analysis creates a perfect merger
of tools and instruments which when utilized together provides insight and information
into the 7Ss of strategic planning: System, styles, staff, structure, strategy, skills and
shared values . The GE/McKinsey Matrix is a strategic guide to evaluating the position
of an SBU. It expedites and accelerates the process of decision making on whether to
focus on an investment within a business unit or to abandon it entirely. The
GE/Mckinsey, BCG Matrix, Ansoff Market/product Matrix are amongst the most utilized
tools for strategic analysis. The GE/McKinsey Matric and the Boston Consulting Group

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Matrix are two tools, which work effectively hand to hand, and proper utilization of these
tools provides adequate knowledge that the Aviation Unit of GE is a strong business
unit and has future prospects (Johnson et al., 2014). The Aviation Unit of GE is
strategically positioned for continuous growth in the future because it posses a variety of
advantages from operating within a perfectly structured multinational. The aviation unit
is positioned to be top in its industry.

RECOMMENDATION
GE Aviation has already acquired global recognition and orientation with a constantly
increasing market base. The success of GE Aviation depends strongly on how GE
choses to focus its business. It is of recommendation that all strategic plans put in place
follow its course. GE Aviation has successfully be able to acquire a niche in the market
by diversification and providing a variety of products. GE Aviation needs to develop a
strategy to coordinate all military sales to the 180 countries they already service. If
successfully executed the Aviation GE will become a very profitable and maintain global
status in the aviation industry. It is evident that’s technology advancement via the use of
additive manufacturing offers an opportunity to the unit to grow its business. Advertising
and strategic marketing remains a superior option to strengthen the firm's brand identity.
With increasing human rights concerns and demands for accountability, there is need
for education and corporate social responsibility, as consumers are becoming more
sensitive to scientific information. Nevertheless challenges of environmental
accountability abound and cannot be ignored.

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Connor, T. (2011) ‘Internal resource audit for strategists—a proposal’, iBusiness, 3(3),
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Morrison, A. and Wensley, R. (1991) ‘Boxing up or boxed in?: A short history of the
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