Harvard Case Study Analysis free essay sample

The company should have been delivering above-average returns and seen all the positives that he preached about it. The reason this did not happen and they faced some humiliation in 2008 until 2010 were due to GE Capital. Immelt thought that they were diversified enough to survive the economic downturn. However this proved to be wrong. In an interview for BusinessWeek magazine David Magee, author of Jeff Immelt and the New GE Way, spoke on what was going wrong for GE. He believes that Immelt and GE did not correctly predict how bad the financial downturn was going to be. By missing that their beliefs that they were diversified enough to survive were no longer correct and they saw their plans for the future going away quickly. Even with that in mind, Magee does not believe that GE is as bad off as everyone thinks and says they are. He goes on to say that a lot of the problem with their stock price is due to the fact that Immelt was not coming through with his promises and having to turn face on a lot of key items he said he wouldn’t do. We will write a custom essay sample on Harvard Case Study Analysis or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page He sees them being able to survive and restructure, but it will not be as quick due to their errors. When the restructure is completed Magee foresees their stock prices rising again and GE to be â€Å"fixed. † The BusinessWeek article also mirrors the ideas of Magee. The article highlights GE’s key issue as GE Capital. It goes on to state that with the economy how it is and so much of their funds tied up in real estate investors have become very nervous when dealing with GE. They have a lot to loss and people are not willing to sit around and wait and see what happens. This nervousness is the main reason GE stocks have been falling and are no longer trading at the price they once were. The article also brings up another issue for GE Capital. It is almost impossible for Immelt to do anything with it. One possible solution would be for him to downsize the financial side and trade GE stock at the multiple of an industrial company. Another is to completely separate the financial business from the rest of GE. That will most likely not be the case. Nobody wants to buy anything from GE Capital and without the rest of GE to back it up GE Capital only has a credit rating of A. According to the article this would force it to â€Å"post up $15 billion in extra collateral and capital†¦to keep borrowing costs at the current level. † So in this solution the costs are not worth the benefits. Even though GE has lost their AAA credit rating for now they are relatively safe with their AA+ they currently have. BusinessWeek believes Immelt needs to continue to focus on making sure that doesn’t slip to keep from further embarrassment to the company’s image. Fortune’s take on GE is very similar to BusinessWeek and David Magee. They saw the main problem at GE as GE Capital. They also saw Immelt turning face on promises on not selling new equity and feeling secure about their funding as the main reason for their stock price falling. Fortune also points at GE’s reliance on GE Capital to make over half of their profits. With the economy how it is and their finances spread all over the place it is almost impossible for the company to get those sort of profits from their financial endeavors. Overall, GE has seen some hardships mostly due to their GE Capital division. With the economic downturn being as severe as it has been it has taken a huge chunk of their profits and thus people see them as vulnerable which in turn caused their stock prices to fall. All of this ended with SP and Moody downgrading GE from their AAA credit rating. This is seen as humiliating to the company. Jeff Immult and his management team did not correctly predict the severity of the financial crisis and now are facing a very steep uphill battle to return GE to its prior glory. This is why even despite the best laid plans they are in the doghouse with investors. In my opinion, GE is not completely back on track. Their stock prices are still low and their credit rating has remained stable but not at their old AAA rating. I agree with what the analysts have said and that the most important thing for GE is to get their stock prices back up. Immelt is trying to do so without selling GE Capital. I believe that in order to get their prices back up they need to downsize GE Capital and have less money tied up in assets that are in this very volatile market, especially real estate. This will help build confidence in investors that they will not see huge losses if the economy takes another turn for the worst. Until that happens I do not see GE getting back on track with Immelt’s plans of growth and profit. 2. GE’s corporate strategy is one of moderate to high level of diversification. More specifically one that is related linked. Most people call them a conglomerate or a company made up of very different companies all operating in different industries. However GE’s CEO Jeff Immelt sees it differently. He doesn’t see a conglomerate he sees a company that is diversified over many industries, but one that works together towards a common goal. You can see that in the way that research and development in one of their industries is used to improve their product or service in a different part of the company. By having all of these differentiated industries working together under the name of GE they have been very successful company. Now the situation is changing. People are seeing GE struggle especially GE Capital. To make up for this Immelt is selling off some parts of his company. This includes life insurance, GE Money Japan, Plastics, WMC, Invision Technologies, and Edwards Systems Technology. People are questioning what exactly Immelt is doing as some of these are being sold for a loss. I don’t see this as a problem or a change in strategy. First off, if you look at the overall sell of all six of these GE came out on top and are making money. I see what Immelt is doing as getting rid of some industries that they don’t connect back to the core company as much as others and also ones he does not see much growth in, one of the major things the CEO is trying to accomplish at GE. Yes he is taking a couple losses, but the overall picture is a positive one. By getting rid of these companies and industries GE seems to be trying to downsize the parts of the company that don’t have the strong links to GE as a whole in order to focus on the true money maker they already possess. This will allow them to once again focus on their business without the distractions of industries that are not as closely linked. By doing this they are making their balance sheets look better which might help calm worried investors who see a lot of risk in their financial holdings in the volatile market we live in today. Overall I think Jeff Immelt is keeping the same long term strategy he started out with, but right now he is begin opportunistic and getting rid of extras. If you look through an RBV model and an RBV model only, you would see that an organization is made up of a collection of unique resources and capabilities. For a wearer of an RBV hat you would want to see very different and unique resources and capabilities that all work together in order to obtain above-average returns. This would be seen in businesses, like GE. You want your resources to be used together in order to create capabilities that can be used to have a competitive advantage. With this view in mind I do agree with what GE is doing right now, by selling off those 6 major subsidiary firms. By getting rid of them GE is trying to dispose of parts of their organization that are not as closely linked to the overall company. This is keeping their strategy of high level related linked diversity and by doing this they are going to solidify their core competencies and create competitive advantage for their company by being able to use their resources in ways that other competitors just cannot. This is why I believe that this is a good strategy for GE. However no matter how good this strategy is, I don’t believe that it will yield returns like they were seeing in the 1990s. This is because the economy right now just cannot support the same amount of returns that they use to see. With the downturn it just is not possible to see similar results to a time when there was an economic boom. However, I do believe their high level related linked diversification strategy will help GE see growth and bigger returns and an overall positive result in the long term, especially under the eye of someone who believes in the RBV model.