Managerial Decision Making
MANAGERIAL DECISION MAKING 10
GeneralElectric is one of the powerful companies that have been in themarket for more than a century. The company is able to retain itsrelevance over the years due to consistent innovation backed byaccurate decision-making from the management. Since 1892, GeneralElectric has been a leading manufacturer of products for variouselectrical purposes such as generation, control, and utilizationamong others. Initially, the firm used to produce and supply aviationproducts such as aircraft engines, equipment for water processing,and medical imaging technologies (Joseph& Ocasio 2012).As time progressed, General Electricals expanded its production andservice to other areas. It started producing products for mediacontent, oil and gas products and variety of industrial supplies. Thefirm also ventured into home and business financial services throughGE Capital.
Toenhance specialization in its production and services, GeneralElectricals formed various segments. These include Power & Water,Energy, Medical, Oil & Gas, Home Solutions, Aviation,Transportation, and GE Capital. Each of these segments has a separateplant and responds to the various needs of its respective sector.General Electric applies diversification as a strategy for remainingrelevant and profitable in the market (Immelt2012).It also embraces technology and innovation in responding to emergingneeds and creating competitive advantage in the market. Currently,General Electric ranks among top ten most profitable companies in theUnited States of America. The company has significant influence inboth local and global markets. Various managerial decisions accountfor performance consistency over different periods. The management isable to make accurate decisions on various trends in the market, thusconsistent improvement and production expansion.
Currently,General electric is able to generate revenue of approximately $143billion when market capitalization stands at $259 billion. Its totalassets amounts to approximately $656 billion and the latest profitstood at $14.8 billion. The total number of employees is above threehundred thousand. Such a huge labor force and desirable performanceindicate firm’s commitment to perfection and improved economy(Immelt2012).The graph below shows performance of General Electric in the last sixdecades.
1920’s1940’s1960’s1980’s 1990’s 2000’s2014
GeneralElectricals has experienced consistent improvement over the yearsexcept in the year 2008/2008 during the global economic crisis.During the period, the firm dropped its profit, but recovered theconsistency in 2009. The firm recorded its highest performance in2014 by posting a profit of USD14.8 Billion.
GeneralElectric Risks and Uncertainties
Businessorganizations encounter various risks in the course of theiroperations. In fact, market trends change every day, hencethreatening business survival. Frequent change in consumer behaviorindicates existence of risks in the business world. Producingindustrial supplies in large quantity involves risks due to possiblechanges in consumer preference and technological advancement. Notethat production of such items requires huge capital injection intothe business. In addition, there are other companies specializing insimilar products. However, General Electric began operation duringthe period of industrialization when most factories needed itsproducts. America alone provided a sufficient market for the firmthus protection from market risk.
Diversificationis a costly exercise due to injection of capital as a majorrequirement. By diversifying investment portfolio into varioussegments, General Electric injects huge capital investment. Venturingin new segments involves investment risk especially in competitivemarkets such as America (Lin& Chang 2015).It requires courage and risk-taking ability to start a segment likeGE capital in an environment with many potential financial serviceproviders. The management decision to venture into financial serviceis an indication that investors can take risk. General Electricspecializes in industrial related market and not finance but themanagement made a courageous decision to start GE Capital as aresponse to market needs. There is a clear indication of effectiveleadership in an organization.
Manufacturingmedical imaging equipment is also a risky business due to frequentchanges in technology. The firm invests huge capital in manufacturingsuch items, which are likely to encounter rejection in case advancedtechnique emerges. Since medical imaging professionals conductresearch consistently, they may declare a certain imaging techniqueless valuable. Lack of diagnostic or therapeutic value affectsmarketability of an imaging technique. To avoid such situation,General Electric usually engages in research and development toensure it produces imaging equipment that responds to market needs.Such trend enables the firm to remain relevant to this particularindustry in the United States of America and global markets as well.It is able to compete with other players in terms of price andtechnological innovation.
Financialreports for this company do not indicate any risky activity exceptduring the year 2007/2008 when the world economy was in a crisis.Most institutions and sectors of the economy in America sufferedfinancial and economic meltdown. General Electric never escaped thetrap and this was not a fruitful year for it. Although the firm didnot report losses during this period, there was a drastic fall inprofitability pattern.
Governmentregulation affects all companies across the respective industry orentire economy. As a multinational corporation, General Electric isvulnerable to various government initiatives especially regulatorymeasures. Since it operates in different countries, the firm faceschallenges of government regulation on product quality. When thegovernments control the quality of products, companies invest extracapital in production to meet the required standard (Aharoniet al 2011).Such event affects cash flow in the company, hence influencing alloperations. The governments also put strict regulation on laborrelations where it dictates the terms of engagement with workers.Fair remuneration and employees’ safety is among the areas thatgovernment regulates to address the welfare of workers. In such case,these regulations have direct impact on the company’s operationssince the management should comply with regulatory measures.
ProductionInput and Challenges of Securing These Inputs
GeneralElectric has diverse production lines, which require differentinputs. The company requires a consistent supply of raw materialssuch as ore and various metals for producing industrial products.Production plants also require energy for propulsion purposes. Thecompany uses computerized gadgets in its production. These inputmaterials and equipment enhances company’s production. Besidesmaterials, the firm utilizes human labor in various activities, thusmaking the production complete.
Thecompany faces several challenges in obtaining input materials. Costof raw materials is a main concern for the company since there arecompetitors who buy these materials at competitive prices. Note thatinput cost has significant influence in the pricing decision.Balancing the input cost and price of the final product has been achallenge for General Electric. Suppliers always strive to get themost competitive price for their raw materials, thus forcing thecompany to pay more to maintain the required inventory. Ever risingcost of materials, both in domestic market and abroad poses achallenge in securing them for uninterrupted production.
Introductionof New Products in the Market
Initially,General Electric specialized in production of electricity generation,control, and utilization products. Consistent growth in manufacturingsector facilitated introduction of new products as a way ofresponding to changes in market demand. The firm later introducedaircraft engines and oil & gas production equipments (Lin& Chang 2015).Emergence of investment opportunities in the medical sectorinfluenced management decisions on introducing imaging equipments.Thecompany ventured into home and business solutions to utilize theavailable opportunities. The diversification trend continued untilwhen it introduced GE capital as a financial service provider. Theseare strategic decisions that General Electric management has beentaking over time (Oberlinget al 2012).Through this strategy, the company is able to generate revenue toguard itself from possible losses in other segments. Consequently,the firm experiences consistency in terms of profitability and marketdominance.
GeneralElectric has had a steady market for its products both locally and inabroad. Cost of input and the level of demand has been the maindeterminants of pricing decision. The company has been increasingprices with increase in input cost. The bost of other factors alsoplays significant role in determining the pricing of products.Consistent increase in labor cost also influences rise in marketprice for General Electric products (Moore,2011).Emergence of competitors has not had considerable effect on prices ofgoods due to rise in demand in equal measure. Industrialization indeveloping economies contributes to elasticity of demand. The globalmarket has been increasing with time, thus favoring stable prices formost products.
Analysisof Company’s Profitability
Sinceits inception in 1892, General Electric has been experiencingprofitable business with ever-increasing demand for its products.Diversification of activities into eight segments influences theprofitability of this particular company. It is able to invest indiverse areas within the manufacturing sector, hence facilitatingquick returns. It posted a net profit of USD 14.8 billion at the endof 2013/2014 financial year. The results attracted positive rankingin the list of best performing companies in the world. Note that thecompany was able withstand 2008/2009 economic meltdown, whichindicates financial stability.
Sincethe company operates in stable markets, it is able to retain itspositive performance. The local market provides a bigger percentageof the revenue. As an industrialized economy, America offersattractive opportunities to maintain good performance. Localindustries are stable enough to provide a market for its products.Developing countries are also adopting industrialization and GeneralElectric utilizes the opportunities to market its products. Oilexploration mission in many countries is posing a viable opportunityto General Electric hence expanding the market. Increased use ofimaging technology in diagnosis and therapy in hospitals across theworld is also advantageous to the company (Lin& Chang 2015).All these factors improve the business environment for GeneralElectric, which has already acquired a strong brand in the market.
Thecompany makes use of its established brand to increase prices for itsproducts. Its popularity influences consumer behavior such thatpeople believe the company produces better products than competitorsdo. The brand alone contributes significantly towards determinationof prices. The expansive and dynamic market is another determinantfor pricing and production decisions. General Electric ensures itutilizes its diverse market to set suitable prices. It is able togenerate revenue and reinvest in production of quality products.Management uses rational decision model when setting prices andproduction level in various markets. The individual market featuresdetermine the price and production depending on the level of demandand consumption power.
Thecompany should seek to establish production plants in developingeconomies. Currently, General Electric is doing little in investingin developing markets such as East Africa economies. This is one ofthe emerging markets with great prospect for this company. Variousoil exploration and drilling activities provide opportunities for thecompany (Oberlinget al 2012).Setting a plant in Kenya may enable the company to set the prices atcompetitive level, thus making the products affordable and profitableto the firm. The economy has most supplies the company need asqualifies labor force.
Thedesirable performance of General Electric demonstrates managementability to make strategic decisions over time. The company has hadprofitable business for decades and the management is able tomaintain good performance. Its positive impact in the industry pavesway for continued profitability in local and global market.Currently, General Electric stands as one of the most successfulcompany in terms of revenue generating and human resource. It hasviable opportunities for growth both geographically and profitmaking.
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Immelt,J. R. (2012). The CEO of General Electric on sparking an Americanmanufacturing renewal. HumanResource Management International Digest,20(6).
Joseph,J., & Ocasio, W. (2012). Architecture, attention, and adaptationin the multibusiness firm: General Electric from 1951 to 2001.StrategicManagement Journal,33(6),633-660.
Moore,D. (2011). Managerialdecision making.Cheltenham: Edward Elgar.
Lin,C., & Chang, C. C. (2015). The effect of technologicaldiversification on organizational performance: An empirical study ofS&P 500 manufacturing firms. TechnologicalForecasting and Social Change,90,575-586.
Oberling,D. F., Obermaier, M., Szklo, A., & La Rovere, E. L. (2012).Investments of oil majors in liquid biofuels: The role ofdiversification, integration and technological lock-ins. biomassand bioenergy,46,270-281.