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General Electric's Quest 1 Running head: General Electric's Quest for Competitive Advantage General Electric's Quest for Global Competitive Advantage: In Search of Structural and Strategic Alignment Tim Lowder Florence - Darlington Technical College & Capella University

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Page 1: DocumentGE

General Electric's Quest 1

Running head: General Electric's Quest for Competitive Advantage

General Electric's Quest for Global Competitive Advantage: In

Search of Structural and Strategic Alignment

Tim Lowder

Florence - Darlington Technical College

&

Capella University

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Abstract

The focus of this research is to perform a structural analysis of General Electric (GE) as it strives

to attain global competitive advantage in light of new leadership strategies. In addition, the

paper presents recommendations to enable a structural design that establishes alignment between

General Electric’s (GE’s) structure and its newly established strategies. GE’s new strategies

focus on customer value, innovation, leadership in technology, commercial excellence,

globalization, and market segmentation based on growth leadership. First, the analysis will focus

on factors that influence the level of synthesis between GE’s technical core and its peripheral

components. Second, the paper identifies and evaluates several interrelated sub-systems

relationships that impact the synergistic alignment between GE’s technical core and its

peripheral components. These interrelated sub-system relationships provide the key to

establishing a foundation for determining an optimal structure aligned with GE’s strategies. In

summary, this paper evaluates GE’s current technical core and peripheral components from a

systems perspective to make structural recommendations on how to best align GE’s structure

with its newly established strategies.

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General Electric's Quest for Competitive Advantage: In Search of

Structural and Strategic Alignment

The focus of this research is to perform a structural analysis of General Electric (GE) as it

strives to attain global competitive advantage in light of new leadership strategies. In addition,

recommendations are made to enable a structural design that establishes alignment between

General Electric’s (GE’s) structure and its newly established strategies. GE’s new strategies

focus on customer value, innovation, leadership in technology, commercial excellence,

globalization, and market segmentation based on growth leadership (See Exhibit I). First, the

analysis will focus on factors that influence the level of synthesis between GE’s technical core

and its peripheral components. Second, the paper identifies and evaluates several interrelated

sub-systems relationships that impact the synergistic alignment between GE’s technical core and

its peripheral components. These interrelated sub-system relationships provide the key to

establishing a foundation for determining an optimal structure aligned with GE’s strategies. In

summary, this paper evaluates GE’s current technical core and peripheral components from a

systems perspective to make structural recommendations on how to best align GE’s structure

with its newly established strategies.

General Electric (GE) has consistently attained double-digit levels of growth and

earnings throughout its history and consequently, stockholders expect these continued results.

Along with these astonishing accomplishments, several significant organizational

transformations occurred within GE’s structure. These transformations occurred because of

GE’s innate ability to continually align its technical core with its peripheral components and

structurally adapt to environmental change and complexity. Because of GE’s new strategies, the

company faces heightened levels of environmental complexity. The heightened levels of

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environmental complexity are attributed to leadership’s departure from traditional growth

strategies in lieu of its continued focus on rapid global expansion (Beam, 2002; Busco, Frigo,

Giovannoni, Riccaboni, & Scapens, 2006; Carter, 2005; Charan, 2000; Colvin, 2006; Hamel,

2006; Kerr & Ulrich, 1995; Liss & Wagner, 2004; Murray, 2001; Noel & Charan, 1988;

Rudnitsky, 2000; Shareef, 1991; Shiba, 2002; Stewart, 2006; N. Tichy & Charan, 1989; Noel M.

Tichy, 1989; Vaghefi & Huellmantel, 1998; Williams, 2005).

Although rapid growth is not new to GE’s management, new leadership is implementing

new strategies and untested tactics in order to sustain the company’s high performance levels.

Consequently, the company has arrived at a pinnacle period in its history in which structure must

be realigned to match GE’s newly founded strategies. GE’s new strategies focus on customer

value, innovation, leadership in technology, commercial excellence, globalization, and market

segmentation based on growth leaders (See Exhibit I). The departure from prior strategy

primarily occurs in GE’s shift to organic growth instead of growth through acquisition, a

customer focus instead of strict focus on technical core competency, and restructuring of

divisions based upon growth leadership. This paper evaluates GE’s current technical core and

peripheral components from a systems perspective to make structural recommendations on how

to best align its structure with these newly established strategies (Baron & Hannan, 1994; Beck,

2006; Gephart, 1999; Selznick, 1996; Williamson, 1981, 1991, 1996).

GE’s Operating Environment

Institutional Environment

Institutional conceptualization. GE’s institutional environment has characteristics that

fall within both the normative and the cultural-cognitive conception of institutions (Scott, 2003).

One characteristic that illustrates these institutional concepts is GE's policies that support both

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employees and managers in implementing strategies at every level within the organizational

structure (Brady & Capell, 2004; Colvin, 2006; Frigo & Janson, 1993; Hamel, 2006; Herscovitch

& Meyer, 2002; Hymowitz, 2003; Meyer, Becker, & Vandenberghe, 2004; Meyer, Paunonen,

Gellatly, Goffin, & Jackson, 1989). GE’s management firmly reinforces the concept that without

people, an organization can not implement strategy and thus, the organization depends on its

employees to carry out its goals. Additionally, GE’s employees and managers are indoctrinated

to the organization’s normative and cultural-cognitive environment through an intense training

and development program that instills the characteristics of both the normative and the cultural

cognitive institutional concepts.

The normative and cultural-cognitive characteristics present within GE’s institutional

structure include obligatory and culturally shared compliance, binding and constitutive order,

appropriate and orthodox logic, certified, accredited, and shared indicators, and both morally

governed and culturally supported legitimacy (Black, 2002; Brady, 2005; Brewer & Bagranoff,

2004; Curry, Meyer, & McKnney, 2006; Frigo & Janson, 1993; Gephart, 1999; Hannan, Pólos,

& Carroll, 2003; Scott, 2003; Noel M. Tichy & Cohen, 1998; Turner, 1986). These diverse

institutional environmental characteristics, particularly the existing training program, are

essential for GE’s new leadership in refocusing its technical core and aligning the organization’s

structure with the new strategies.

Buffering tactics. As mentioned earlier, GE attained its diverse institutional environment

by placing a tremendous emphasis on hiring people who are excellent decision makers, highly

motivated, and very energetic. Once hired, the employees and managers are cross trained across

divisions, required to attain certification at some level in six sigma, and trained in a problem

resolution system called work-out (Anonymous, 2005; Fox, 2002; Howell, 2000; Noel M. Tichy,

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1989; Noel M. Tichy & Cohen, 1998). In addition, GE uses the cross-functional team building

“work out” program to integrate and synergize organizational resources which creates

interdependency between various sub-system components and strengthens its technical core

(Kerr & Ulrich, 1995; Noel & Charan, 1988; Noel M. Tichy & Cohen, 1998). All of these

efforts result in a strong normative and cultural-cognitive institutional environment that

strengthens, reinforces, and buffers GE’s technical core.

Material-resource Environment

Best-cost strategy. One strategy GE uses to attain competitive advantage within its

material resource environment is the best-cost provider as described by Thompson, Strickland, &

Gamble (2005), which provides “customers more value for the money by incorporating good-to-

excellent product attributes at a lower cost than rivals, the target is to have the lowest (best) costs

and prices compared to rivals offering products with comparable attributes” (p. 116). GE is able

to achieve this strategy through several bridging tactics that focus on developing strategic

alliances and partnerships with suppliers to establish a low-cost position on the front side of the

task environment and value chain.

As mentioned earlier, GE buffers its technical core by employing excellent managers and

employees that implement the lean six sigma process control system at every level to maximize

quality during manufacturing, minimize already low manufacturing costs, and maximize

customer satisfaction through prompt product delivery, excellence service, and strong warranties

(Brewer & Bagranoff, 2004; Colvin, 2006; Howell, 2000; McClenahen, 2006; Murray, 2001;

Quinn, 2005; Williams, 2005). GE must continue to use the best-cost provider strategy in its

business model to maximize the effectiveness of its task environment and technical core

capabilities.

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Differentiation strategy. Another bridging tactic incorporated into GE’s strategy is a

differentiation strategy which is designed to appeal to a broad range of customers (Hamel, 2006;

Herrmann, 2005; Rivkin, 2000; Rothschild, 1993; A. Thompson, Strickland, & Gamble, 2005; A.

A. Thompson, Strickland III, & Gamble, 2005b; Noel M. Tichy, 1989). This strategy is very

distinct from and in most cases not offered by rivals. The results create a value added dimension

to GE’s task environment and includes excellent after market services including financing,

warranties, repairs, servicing, and parts (Byrne, 1999; McClenahen, 2006; Murray, 2001;

Wrighton & Kranhold, 2004). The differentiation strategy is essential for GE’s leadership to

attain the organic growth that is required in the new strategies.

Low-costs strategy. GE also uses a highly focused strategy that is based upon lower cost

and is able to effectively implement this strategy because of its “best-cost provider strategy”

which was discussed earlier (A. Thompson et al., 2005). GE’s selective global expansion efforts

allow GE to use this low-cost focused strategy to attract developing countries to their company’s

products and services. GE offers lower costs than its rivals because of its tactical objective to

provide aftermarket products and support for the original product sales. GE’s three-prong

strategic attack on rivals provides both a short-term and long-term competitive advantage

provided. Hence, GE is able to maintain the value and integrity of its task environment and

strengthen its technical core (Scott, 2003; J. D. Thompson, 1960; Noel M. Tichy, 1989).

Bridging the task environment. GE management consistently focuses on reducing the

complexity of its technical core, understanding the sophistication of the consumer, expanding its

channels of distribution, shortening the length of time to market for products, reinforcing its

infrastructure, reducing customer switching costs, increasing the availability of complementary

products and/or services, reducing the availability of substitutes, and shoring up its position in

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relation to economic conditions (Colvin, 2006; Insana, 2002; Kathryn Kranhold, 2004; Kathryn

Kranhold, 2005a; Michaels, Kranhold, & Lunsford, 2005; Murray, 2001; Roberts, 2005b; Sears,

1984; Stewart, 2006). Much of GE’s efforts to create structural alignment with strategy occur

within its material-resource environment and involve mapping peripheral complexity into its task

environment.

Technical Core and Peripheral Components

Technical Core Analysis

Technical core and knowledge transfer. To strengthen its technical core, GE has

significantly leveraged the technological capabilities of its service businesses by taking

advantage of knowledge transfer from its healthcare imaging division and applying the

knowledge to its energy, rail, aviation, and oil and gas divisions to eliminate infrastructure

weaknesses (General Electric annual report, 2006; Gephart, 1999; Stewart, 2006). The

company is also using the strength, depth, and capacity of its technical core as a bridging tactic

to align its huge technology knowledge base with its service delivery peripheral component to

provide customers with solutions in efficiency, environmental performance, and quality control

(General Electric annual report, 2006; Harvey, 2005; Vaghefi & Huellmantel, 1998; Wrighton

& Kranhold, 2004). This knowledge transfer bridging tactic is essential to GE’s structural re-

alignment to adapt to the new strategies.

Technical core capacity. GE uses a unique, open systems initiative called “enterprise

selling” which allows the company to offer its customers a diversified solution through its

product offerings and after market capabilities that include financing, training, repair, warranties,

and after market parts (Black, 2002; Dhanaraj & Parkhe, 2006; General Electric annual report,

2006; Mockler, 1968; Orton & Weick, 1990; Slywotzky & Morrison, 2000; J. D. Thompson &

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Bates, 1957; Weick, 1987; Williamson, 1963, 1981, 2002). The focus of this initiative is to align

the company’s technical core with its peripheral environment, particularly customer needs, to

provide solutions that encompass the areas of energy-efficiency and emissions-reduction. This

initiative demonstrate GE’s significant steps to map external environmental complexity into its

structure by internalizing customer demands and expectations into its technical core and task

environment (McCann, 2004; Rivkin, 2000; J. D. Thompson & Bates, 1957; Umpleby & Dent,

1999; Weick, 1987, 1989). In summary, GE’s strategies and tactics are highly focused on

aligning its technical core with its peripheral environmental complexity in order to map the

complexity into its structure.

Peripheral Components Analysis

Size and structure. Throughout the past several decades, GE has attained a significant

competitive advantage by diversification within vertically synergistic businesses in specific

industries. This diversification strategy has provided GE with greater economies of scope and

scale. Moreover, the added economies of scope and scale have provided GE with lower costs

and a bridging tactic which has strengthened its task environment and value chain (A. A.

Thompson, Strickland III, & Gamble, 2005a). In addition, GE has attained greater control over

both its technical core and task environment through boundary spanning which has allowed

management to clearly establish its domain in the areas of design, quality, availability, and

delivery of front-end and back-end value chain resources.

Mergers, acquisitions, and strategic alliances at the national and global level have

allowed GE to attain both vertical and horizontal structural integration. As stated earlier, this

bridging tactic has strengthen the company’s strategic position in the global marketplace and

better aligned task environment to its peripheral components. These tasks environment strengths

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are demonstrated by the company’s ability to sell products in addition to providing financing,

installing, setting-up, monitoring, servicing, repairing, and providing parts for its products

(Dhanaraj & Parkhe, 2006; Frigo & Janson, 1993; Hymowitz, 2003; Kathryn Kranhold, 2005b;

Liss & Wagner, 2004; McCann, 2004; Meyer & Smith, 2000; Roberts, 2005a; Scott, 1996;

Selznick, 1996; Williams, 2005; Wrighton & Kranhold, 2004). Leadership’s new strategies will

require that GE’s management reevaluate and redefined its domain as the organization strives for

organic, natural growth instead of growth through mergers and acquisitions.

Interdependent networks. From a rational systems perspective, GE has attained

competitive advantages in foreign markets by attaining synergy within interdependent networks

through its Global Performance Management System (Busco et al., 2006). This performance

management system allows the integration of operational capacities between the parent

company, subsidiaries, and strategically aligned partners. Moreover, management aligned the

company with suppliers and formed strategic alliances and partnerships to establish a low-cost

advantage on the front side of the task environment. In essence, the resulting open systems

synergy provides a significant competitive advantage wherein there is superior financial

performance and the interdependent network components become more than the sum of their

individual parts (Busco et al., 2006; Gephart, 1999; Kerr & Ulrich, 1995; Williamson, 1981).

In Search of Synergy

Organizational Interdependence

Enactment process. GE’s success hinges on the interdependence of the various actors

including, managers, employees, customers, suppliers, and strategic partners and their

relationship to the organization’s task environment. Having made this assertion, an earlier

premise must be reiterated which stated that GE’s managers and employees are encouraged to

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make important decisions related to organizational goals on a daily basis (Brady & Capell, 2004;

Frigo & Janson, 1993; Meyer et al., 1989). In other words, decision making has been decoupled

which results in a faster, more responsive decision making process and a leaner, more efficient

technical core and task environment (Arussy, 2005; Goett, 1999; Meyer & Gemmell, 1997;

Murray, 2001; Roberts, 2005c; Stewart, 2006; Weick, 1987).

Attention requirements. GE has consistently required a high-level of management and

employee performance. These demands have resulted in increasing quality level requirements

for products and services and implementation of lean six-sigma which has very little tolerance

for exceptions to quality standards (3.4 defects per million or less) (Brewer & Bagranoff, 2004;

Colvin, 2006; Howell, 2000; McClenahen, 2006; Murray, 2001; Quinn, 2005; Williams, 2005).

As mentioned earlier, GE’s human resources department is committed to developing and

nurturing high performers and provides the resources to train and promote potential leaders from

within the company. Training and development programs stress the performance requirements

faced by employees and make them aware of both normative and cultural-cognitive institutional

factors necessary for success (Baron & Hannan, 1994; Beck, 2006; Gephart, 1999; Scott, 2003;

Selznick, 1996; Williamson, 1981, 1991, 1996). The attention component of GE’s institutional

environment is critical to the success of its restructuring to adapt to the new strategies.

Outcomes. GE also focuses on continuous improvement by using lean six sigma to

realign its internal processes from the customer’s perspective in order to improve speed and

delivery (Beam, 2002; Busco et al., 2006; Howell, 2000; Quinn, 2005). GE is using the lean six

sigma processes to measure and control the task environment through the implementation of

“lean showcases” that focus on minimizing cycle time and creating controlled, incremental

growth (General Electric annual report, 2006). Lastly, GE uses a metric called Net Promoter

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Score to measure how its customers perceive the company (General Electric annual report,

2006). The goal is to link this metric to the company’s growth to assure its customers

satisifaction throughout the growth process. The ultimate determination of success or failure for

the organization’s outcomes relies on the Global Performance Measurement System (Busco et

al., 2006). To reiterate a point made earlier, this outcome assessment tool also provides a means

to align GE’s technical core and task environment with its peripheral environment, particularly

customers.

Boundary management. GE is one of a few companies that attempts to eliminate

boundaries between its internal and external structural components. The goal is to tear down all

external boundaries and make suppliers, customers, and strategic partners part of a single

process. The objective of this bridging tactic is to create an institutional environment that maps

the best ideas and practices from other companies into GE’s structure (Bartee, 1971; Herrmann,

2005; Kerr & Ulrich, 1995; Scott, 2004). Bridging through bargaining, contracting, co-optation,

joint ventures, strategic alliances, and mergers are consistently used by GE to attain global

competitive advantage and allow mapping of environmental complexity into its structure (Busco

et al., 2006; Kerr & Ulrich, 1995; Kathryn Kranhold, 2004; Kathryn Kranhold, 2005a; Scott,

2003). The new strategies will require that GE’s management reassess it boundaries to better

align the structure with components that generate organic, natural growth.

GE’s Dominate Coalition

Dominate coalition. GE’s management has focused on creating an environment where

the dominate coalition is represented by the company’s stockholders. This stockholder

dominance over GE’s goals and strategy is exemplified by their persistent expectation that GE

produce double-digit earnings throughout its history. In fact, prior leadership’s strategies

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primarily focused on growth and efficiencies in order to maximize profit and return on

investment (Byrne, 1999; Fox, 2002; Insana, 2002; Kathryn Kranhold, 2004). The current shift

in strategies under new leadership requires that GE address the dominate coalition issue and

redistribute coalition power within its structure. Fortunately, this task can be accomplished

because GE’s structure also contains a significant coalition of actors that includes managers,

employees, suppliers, partners, and strategic alliances that have considerable influence over GE’s

goals and strategies.

Coalition support. Two additional coalitions are formed because of GE’s efforts to

continually assess its technical core to link process excellence directly to customer value

(Howell, 2000; Quinn, 2005). First, this task is accomplished in the employee enactment process

by linking the company’s technical core to customer successes through what is called “dreaming

sessions” in which large groups of customers are brought together to share in shaping GE’s

strategic initiatives (General Electric annual report, 2006). Second, GE uses a cross-functional

team building exercise called “work out” that is specifically designed to integrate and synergize

organizational resources and stimulate interdependency between various organizational sub-

systems to strengthen its technical core (Kerr & Ulrich, 1995; Noel & Charan, 1988; Noel M.

Tichy & Cohen, 1998). These two tactics provide additional coalitions that are formed around

customers and employees which allow them to have a tremendous impact on goal setting.

GE management also focuses on an open systems concept called boundarylessness,

which eliminates the barriers between external environmental components and includes both

suppliers and customers in a single process that maps the best ideas and practices into its

structure (Charan, 2000; Kerr & Ulrich, 1995; Scott, 2003). As a result, customers, suppliers,

and employees have a tremendous influence on the organization’s technical core and task

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environment. Consequently, these additional coalitions play a crutial role in aligning the

organizational structure toward accomplishing the organization’s strategies.

Attaining Structural and Strategic Alignment.

Thus far, we have discussed various factors that either contribute to or have the potential

to diminish the alignment or fit between GE’s organizational structure and its new strategies.

The two strategic issues that pose the greatest threat to structural fit with strategy are the new

emphasis on organic growth verses growth through mergers and acquisitions and a greater

emphasis on customer value. First, as mentioned earlier, GE’s dominate coalition is represented

by organization’s stockholders who place a great deal of emphasis on both double-digit earnings

and growth. This issue represents a significant problem for GE’s management as the new

strategies will tend to result in lower growth and lower earnings. Growth will be slower because

organic growth is much harder to attain. Second, because there is a tremendous shift in strategy

toward creating customer value, profits will tend diminish as the organization uses more

resources to accomplish this strategy. Within these two new shifts in strategies, a dysfunction

evolves between structure and strategy. An important question arises concerning managements’s

ability to redesign GE’s structure to minimize the potentially dysfunctional situation between

structure and strategy?

Recommendations

The following recommendations focus on assisting in the alignment of GE’s structure and

its strategy in light of the previously addressed problematic issues. Thus far, the paper has

thoroughly addressed GE’s technical core and peripheral components and demonstrated that a

tremendous amount of environmental complexity has been mapped into and internalized within

its structure. The paper also addressed the fact that GE used mergers and acquisitions as a

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significant bridging tactic to accomplish the important mapping processes. The following

recommendations are provided based upon the facts presented thus far.

First, it is crutial that management incrementally adapt the new organic growth strategy

to allow for a graduated structural adaptation over time. This element is important because much

of GE’s technical core and task environment capabilities were derived from its steady stream of

mergers and acquisitions. Consequently, an immediate shift in strategy will detrimentally impact

its GE’s structural stability.

Second, management must take advantage of GE’s existing technical core and task

environment capabilities as a strategic inititative to enhance customer value and avoid the

allocation of excessive resources to accomplish this new strategy. The best-cost, differentiation,

and low-cost strategies have all been very effective at providing efficiencies through economies

of scale and scope and can easily be refocused and directed toward providing added customer

value.

Third, the dominate coalition issue must be quickly addressed and a strategy adopted to

diminish the effects of stockholder demands on organizational goals. Hence, growth and

earnings can not remain the primary objective that drives organizational goal setting. This

cultural and social transition from a profit motive to a customer value motive must occur before

management can begin to establish goals that emphasize organic growth. This power shift must

start with the board of directors and then be instilled throughout the organization. Much of the

cultural-cognitive shift can readily be implemented through GE’s strong institutional

environment that includes its corporate training and development programs. Additionally, the

cultural-cognitive shift for managers and employees toward a focus on customer value and

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internal growth will reinforce GE’s new strategies and help them materialize within a shorter

time horizon.

In summary, GE’s organizational structure has the strength and capability to accomplish

its new strategic objectives. However, it is essential that management understand the fact that a

departure from traditional strategy must be accompanied by a change within all levels of its

organizational structure. GE’s structural changes must be strategically planned and implemented

within its technical core, task environment, and peripheral components through the effective use

of its strong institutional and material resource environments.

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EXHIBIT I

GE’s Core Growth Strategy & Growth Traits

GROWTH TRAITS To achieve our growth goals, we need a new type of leader. We studied the attributes of companies that have had long-term success with organic growth and found they had five traits in common. We call these our growth traits.

(General Electric annual report, 2006)

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