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GE Corporate Strategy Analysis

GE pursued diversification to increase its stock price, bringing in $157 billion in revenues across five business units. However, GE lost over 85% of its market valuation, or $507 billion, since its peak, due to pursuing an overly diversified corporate strategy. Jeffrey Immelt stated that combining industrial and financial companies was a "uniquely bad idea" as the two operate very differently. While Jack Welch achieved great success at GE, Collins' hypothesis that a leader's true impact is only known after they depart somewhat applies, as Welch acknowledged his poor choice of successor contributed to GE's decline.

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407 views2 pages

GE Corporate Strategy Analysis

GE pursued diversification to increase its stock price, bringing in $157 billion in revenues across five business units. However, GE lost over 85% of its market valuation, or $507 billion, since its peak, due to pursuing an overly diversified corporate strategy. Jeffrey Immelt stated that combining industrial and financial companies was a "uniquely bad idea" as the two operate very differently. While Jack Welch achieved great success at GE, Collins' hypothesis that a leader's true impact is only known after they depart somewhat applies, as Welch acknowledged his poor choice of successor contributed to GE's decline.

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Sydney Bryant

10/27/20

BUS 400

Case Questions

GE: Corporate Strategy Gone Wrong:

1. What kind of diversification is GE pursuing? What are the sources of value creation with

this type of diversification?

a. GE is pursuing a diversification discount, this means that their stock price was

valued less than the sum of their business. This type of diversification allowed

GE’s stock to jump 11% on the day of announcement. After that, GE’s five

business units brought in $157 billion in revenues.

2. How did GE lose $507 billion (more than 85 per-cent) of its market valuation since its

peak? What went wrong?

a. The main reason that GE lost $507 billion of its market valuation since its peak is

really simple. They had a very corporate strategy, Jack Welch was a very hard

headed CEO and demanded a lot of things from the workers at GE. This caused

lack of motivation and workers to be in fear of losing their jobs. In order to fix

this, strategic leaders had to formulate a new corporate strategy.

3. After leaving GE, Jeffrey Immelt stated in 2018: “The notion of plugging financial

services and industrial companies together, maybe it was a good idea at a point in time,

but it is a uniquely bad idea now.” To what is Immelt referring? Why does he think this is

a bad idea? Do you agree? Why, or why not

a. I believe that this is a bad idea because the two companies operate so differently

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from each other so plugging in financial information for both companies together

could cause the companies to fall apart.

4. In the bestseller Good to Great, Jim Collins advances the hypothesis that the greatness of

a leader is known only after the leader has departed. The business press has celebrated

Jack Welch as the greatest CEO of the last century. After reading this MiniCase, do you

agree with Collins’ strategic leadership hypothesis? Why, or why not? Note: When

interviewed in 2018 about the GE situation, Jack Welch had this to say: “I give myself an

A for the operation of GE, but an F for my choice of successor.”

a. I agree with Collins hypothesis only to an extent, because while a lot of leaders

follow their successors, there are some leaders that build off of what their

successors were doing. I believe that it is important to look at what your successor

may have done wrong or done right and then determine how you can fix the bad

and make the good even better. Along with that, I believe a lot of people don’t

even follow what their successors used to do because they completely disagree

with the way they conducted business.

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