Executive summary
The essay is based on the case study on Healthymagination at GE (in 2011), written by Marne L. Arthaud –Day, Alicia Horbaczewski, Frank T. Rothaermel. The case is very interesting. In spite of the fact that GE has lost more than $200 billion in market capitalization; the CEO Mr. Jeffrey Immelt has shown courage to maintain the business and provided vision and mission to the GE. The case study highlights the background through which the initiative came and how Immelt used that to regain the lost goodwill. An essay written by the author is based on GEs corporate issue of divesting some of its conglomerate segments. The essay summarizes the predicament faced by Immelt, followed by a set of measures CEO can take to regain the past glory.
In the year 2011, Healthcare (consolidated three-year revenues and total segment profit) revenues and segment profit increased by 7% and 2%, respectively. In the year 2010, the revenues and profits were 6% and 13%, respectively. With respect to healthcare, the company is investing in market-driven technologies and services. The revenues in this segment increased during last two years due to increased volume from high-value medical equipment sales and services. In spite of success in Ecomagination and Healthymagination, Immeslt is reluctant to divest the longstanding businesses. He believes that a diversified portfolio is a risk mitigating tool. But the stakeholders doubt whether Immelt’s strategy would succeed.
Strategic Solution
Peter Drucker once said that the CEO is the bridge between the inside of the organization and the outside environment i.e. society, economy, technology, markets, and customers. He went on to say that inside there are only costs, and the results are only on the outside. Under the leadership of Jeffrey Immelt the CEO of GE, what Drucker pointed out happened in the span of ten years. If the revenues, share price and market capitalization alone are the scales to measure the success of a business, then GE has been performing worst. The dip of share price from $60 to $ 6.6 is enough for the investors, employees, and management to lose hope of recovery and pull the company to bankruptcy. However, Immelt has shown courage to confront the realty, redesign the strategy and maintain steady revenues and goodwill of the company. Immelt has focused on certain key activities that were important for the survival and growth of GE. But, the stakeholders have doubt on the strategy executed by Immelt.
Drucker also wrote that the purpose of a business is to create a customer. GE’s purpose is also to improve customer’s lives with GE technology and products every day. The GE has the tradition of considering the customer as the prime stakeholder of a business. Everybody knows that the customer is king; Immelt knew this in 2001 as all know it today. But GE was focused on the industrial business and returns to the investors. The company was not fully appreciating the customer needs. However, Immelt has already spent a lot of resources for the benefit of the end customer. People respect those who speak and mean business. In order to gain the trust of the investors and the work force, as a CEO, Immelt must continue and adhere to the following roles and tasks. Please note that the following suggestions cannot be delegated and only CEO can do it.
Define and interpret the meaningful outside: The CEO must make everybody understand that of all stakeholders, customer is the most important and the company must create a customer oriented culture. GE already has the tradition of caring for the end customer. Immelt has already demonstrated it by leading the top management to see the market potential for health care in the US as well as elsewhere. The CEO must drive the belief that the consumer is boss. Without consumers, there is no GE. The company must recognize that there are two critical moments that bond the company with the individual consumer. GE creates meaningful impact when it touches the customer at two critical moments of truth. One is when the end customer knowingly or unknowingly is benefitted by the company products / services. Second moment of significance is when the customer is biased to buy from GE. The organization must always keep pace with the changing needs of the customer.
Define to all stakeholders what business GE is pursuing and what is not pursued. This question is most neglected by the CEOs. Good companies answer such question through their actions. Only CEO has the enterprise wide perspective to make the tough choices. Other people can help in supplying the information and view-points, but the CEO has to make a decision. The GEs decision to move into green and health business came from CEO. Immelt has already indicated about the need for low cost medical solutions.
Balancing the present and future of the company: Whether to go for short term or long term approach and to balance the decisions without leaning on others too much is another important skill. The ability to judge short term or long term need to be acquired by the next gen managers. Striking the right balance between the short and the long term outcomes is a task that cannot be delegated. When such decisions are taken, it is better to notify the matter to the stakeholders. Defining realistic growth goals is another related step. Immelt has already made the employees stretch their performance. Shortly after Immelt became successful in ecomagination, he took the stretch goal of moving into health care. For enhancing investor confidence, the CEO must give reasons for choosing an alternative.
Shaping Values and Standards: A company’s identity is determined by the values it practices. ‘Imagination at work ‘speaks much about GE. The CEO and another top management should understand its connotation and communicate the values by all means available. The values must be relevant for the present and future conditions. The deep values of GE have been in place for generations, but over time they had become silos and may have lost its shine. The CEO must live the values fixed by the organization, and CEO’s value practice will instill confidence among the investors and employees.
The points presented here may look simple. The simplicity and clarity of these roles are their strength. The challenge is to resist getting sucked into non-core business or misfit business. Many CEOs make the mistake of abandoning the core and diversifying soon. Also the investors are becoming impatient. For genuine reasons of price fall and lower market capitalization, the investors would support the CEO.
A profitability analysis must be done to ascertain whether the business is yielding cash flow. The companies and segments that are not profitable must be analyzed and new strategy need to be infused into the team. If a segment that is not profitable and also do not have market for the products and services, divesting is the most suitable action. However, divesting and acquisition must be done with care and in the light of the strategy.
Along with efforts to improve the business, the company must take care and avoid making abrupt changes in business strategy. The management must base its decisions on the collective experience of the managers and the decision must work best for GE. The reasons for decisions also must be made transparent for the sake of non-participating stakeholders.
Every CEO is uniquely positioned. CEO can protect, nurture and propagate a company’s purpose, values, and standards that are relevant for short term and long term goals. The CEO can and must make necessary mediations to keep the organizational purpose and values focused. CEO must ensure that organization creates an impact in the market and lives of the customers. To sustain competitive advantage and growth, the business strategy must be shared with everybody in the organization so that they can work with awareness.
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