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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
General Electric's Quest 2
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.
General Electric's Quest 3
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
General Electric's Quest 4
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
General Electric's Quest 5
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,
General Electric's Quest 6
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
General Electric's Quest 8
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 &
General Electric's Quest 9
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
General Electric's Quest 11
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
General Electric's Quest 12
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
General Electric's Quest 13
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
General Electric's Quest 14
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
General Electric's Quest 15
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
General Electric's Quest 16
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.
General Electric's Quest 17
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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