General electric company research study

In order to determine whether General Electric (GE) is a realistic option to be included in the firm’s investment portfolio, this article uses the company as a case study. The challenges of bringing about a paradigm shift in the energy industry are taken on by General Electric, one of the most creative and innovative companies in the world. GE develops and produces goods for the production, transmission, regulation, distribution, and use of electricity. The company also provides financial services (Woyke, 2017). Energy Management, Power and Water, Transportation, Healthcare, GE Capital, Appliance and Lighting, Oil and Gas, and Aviation make up GE’s eight operational divisions. The Energy Management section deals with the design of technology solutions across various energy-intensive industries. The Power and Water section deal with the generation of power, and the Oil and Gas section focuses on the critical equipment for the worldwide oil and gas industry. The transportation segment focuses on worldwide technology and supplier to the mining, railroad, and drilling industries. The capital segment provides financial products and services globally for all kinds of businesses and also provides commercial loans. The healthcare products include diagnostic imaging systems like nuclear imaging and X-ray and the Appliances, and Lighting products include gas and electric ranges and hybrid water heaters. Thomas A. Edison founded General Electric company in 1878, and its headquarters is located in Boston, Massachusetts (Woyke, 2017).

Organizational analysis

The former General Electric chairman who also doubles as the chief executive Jeffrey R. Immelt is credited for the company’s success especially at what GE is good at producing: highly capable, progressive leaders who can execute the company’s strategy and growth (Kiger, 2010). The management uses 360-degrees reviews and bottom-line data tools to evaluate the progress of its leadership candidates. General Electric has its Leadership, Innovation, and Growth (LIG) development program in which scores of executive managers spent days evaluating case histories of the company’s projects to overcome the challenges to growth and innovation (Kiger, 2010). Concerning the regulatory environment, GE is subject to an increased number of enforcements and regulations both locally and internationally. The environment demands that each employer and employee be aware and committed to regulatory excellence (General Electric CompanySWOT Analysis, 2017)

Although GE generates annual revenue of $146 billion, the company’s gross profit margin for the second quarter of its financial year 2017 has dropped in comparison to the fiscal year ending 2016 (Abetti, 2011). The net income and sales have also decreased, in as much as the net income growth underperformed the average competitor within the company, the revenue growth did not. Additionally, the stockholder’s equity has realized a 12.75% drop when compared to the same period a year ago (Abetti, 2011). However, based on the street ratings, GE has a growth score greater than 60% of other companies dealing with similar products and has also generated more income per dollar of capital as compared to its competitors. General Electronics returned $12 billion to shareholders in the financial year 2016 in dividends and stock buybacks and estimated an annual return of $18 billion in 2017 (Woyke, 2017).

Critical incidents

Organization’s achievements

Due to rapid changes in technology over the past few decades, most large companies particularly GE were forced to make necessary changes. Provided that GE operates in 180 countries and has over 330,000 workers, the company purposed to transform. To achieve such a large change exacerbated by the fact that the environment is so large, General Electric designed three imperatives (Rice, 2017). The major levers of change were:

Embracing a new way of thinking about the work of the company and how to complete the tasks effectively.

Introduction of GE sets of values. These are beliefs or statements which describe the conduct and behavior of a company with individual members as well as with the customers.

A redesign of the company’s performance management, for the system to support a new working style.

The management has put in play the first two levers, and the redesign of the performance management system is still being scaled over time after its launch three years ago.

Organization’s challenges

In 2008, during the financial crunch, GE’s use of commercial paper to fund massive lending business left it susceptible to frozen credit market. In effect, GE lost its top credit ratings to frozen markets from Poor’s and Moody’s, and Standard. Abetti (2011) reports that after the financial crisis, GE has had a lot of effort to rebuild its earnings and revenue. One key solution for GE was to shrink the Capital unit size with the aim of exiting the consumer finance business and cut off GE Capital to $300 to $400 billion.

Investment potential

Regardless of the weakness in the oil business, General Electrics has anticipated growth in earnings in 2017 of $1.70 - &1.80 a share, which translates to a boost of approximately 7% (Trainer, 2016). The company projects a $1.10 to $1.20 per share in the industrial segment alone of this year’s total EPS. Even so, financial analysts expected more percentage seeing as GE shares have dropped 8.5% to-date (Trainer, 2016). Thus, the fall in shares creates an opportunity for long-term investors. Noble (2017) contends that with an increase in EPS even to the threshold of the estimate, the company’s stock will be trading at reasonable appraisal of approximately fifteen-fold revenue. According to Sushinsky & Research (2014), potential investors would be concerned about the size of GE capital in comparison to the entire company has not changed much. IMMELT (2017) also asserts that with a rising dividend, a comprehensive business model, and improved fundamentals, General Electric might finally become a herald stock once more.

Recommendation

A Recent report indicates that GE’s stock closed 30% below where it was, same time where it was when former CEO, Mr. Immelt took over (Brumley, 2017). This raises a serious concern, and if the company is to recover, the revenue should increase beyond the current levels which require the help of investors. Now that General Electric is on a decline as a systematically business jargon in the country’s financial core, it can minimise expenses and concentrate on building its digital infrastructure future. With the aid of investors, the company can increase revenue growth by creating new products or selling into new markets. For instance, General Electric recently launched a new division, called Current with the aim of assisting companies to manage their energy requirements. The division currently generates revenue worth $1 billion for the sales of light bulbs (Edwards & Gandy, 2014). Also, GE can realize immense growth through digital transformation which might possibly open doors for various opportunities. Edwards & Gandy (2014) postulate that if GE invests a large facet of its Capital proceeds in growing the Predix cloud and designing new software applications, it would largely improve the industry’s efficiency.

References

Abetti, P. A. (2011). General Electric at the crossroads: the end of the last US conglomerate?. International Journal Of Technology Management, 54(4), 345-368.

Brumley, J. (2017). General Electric Company (GE) Stock Is Far More Dangerous Than You Think. InvestorPlace. Retrieved from https://investorplace.com/2017/06/general-electric-company-ge-stock-far-more-dangerous/#.WdZQ4I-Cxdj.

Edwards, R., & Gandy, A. (2014). Navigating the M-Form: Product Scope Review and the development of the General Electric Computer Department. Business History, 56(8), 1361-1379. doi:10.1080/00076791.2014.898631

General Electric CompanySWOT Analysis. (2017). General Electric Company SWOT Analysis, 1-10.

IMMELT, J. R. (2017). HOW I REMADE GE: AND WHAT I LEARNED ALONG THE WAY. Harvard Business Review, 95(5), 42-51.

Kiger, P. J. (2010). The leadership formula. Workforce Management, 89(5), 25-31.

Noble, B. (2017). 5 of the Biggest Challenges GE’s Jeff Immelt Faced As CEO. TheStreet. Retrieved from https://www.thestreet.com/slideshow/14175046/5/5-of-the-biggest-challenges-ge-s-jeff-immelt-faced-as-ceo.html.

Rice, J. G. (2017). How GE is becoming a truly global network. Mckinsey Quarterly, (2), 53-56.

Sushinsky, G., & Research, W. (2014). GE Stock Continues Its Post-Recession Rebuild. Wyatt Investment Research. Retrieved from http://www.wyattresearch.com/article/ge-stock.

Trainer, D. (2016). Forbes Welcome. Forbes.com. Retrieved from https://www.forbes.com/sites/greatspeculations/2016/04/22/how-general-electric-can-prevent-125-billion-decline-in-market-value/3/#63e8d41cc404.

Woyke, E. (2017). General Electric. MIT Technology Review, 120(4), 78-83.