Edo Rissandi

2014956515
Business Strategy Final Exam

Question 1 Answer

According to the case reading, we can see that General Electric

can be considered as a company who pursued the Industrial
Organization model. The reason General Electric to be classified that
way is because General Electric can be seen to seek and do the
research for potential markets and to enter the markets rather than try
to develop brand new product from the resources that the company
has. It can be seen from Jeff Immelt, the CEO of GE he believe that
there are a some potential sector of business that will be fit for GE in
the future, through his plan in Innovation and Internationalization
which was the plan on acquisitioning existing company which has
potential sector on the future such as Bioscience and renewable
energy because there are considered to be more promising rather than
the financial business. The strategy can be seen in the acquisition of
Amersham (in 2004), Enron Wind (in 2002), Finland Instrumentarium
and even for the recent one, Monsal. GE acquired these companies
because most of them are considered potential for the future of GE
businesses.

The Industrial Organization model:

External Environment
The reason that GE acquired these companies is that the industry
environment of this kind of company is considered to be potential. GE
believes that this kind of sectors will be the trend in the years that are
going to come as their research saw the signal of environmental
changes and trends that leading towards bioscience and renewable
energy. As the CEO said that he had forecasted what is likely going to
be trend in the next years, GE assessed the strategy by acquisitioning
these companies that are considered to be the next big thing. These
acquisitions were made in hoping that GE can develop what the
resources it had from the company that it GE acquisitioned to fulfill the
needs of the future environment needs that GE had projected.

Attractive Industry
As the bioscience and renewable energy are considered to be not
much in that occurred industry, GE saw this as the opportunity to
develop it even more. Because of its potential reasons, GE predicted
that this industry would generate above average return as the industry

structure of bioscience and renewable energy is identified on bringing

the environmental changes and trends.

Strategy Formulation
As the acquisition of the selected companies has done, it was the
time for GE to develop the strategy for its plan on achieving above
average returns. GE had chosen the product differentiation strategy as
their strategy to develop the business. The reason was that GE will
make the environmental trend and changes in this industry that any
other companies were not capable or cannot compete so that GE will
be the dominant player in this industry. If GE really be the dominant
player on this industry, then it can set the premium price to gain above
average return.

Assets and Skills

GE was first known as an electronic company, which then
expands to become a financial company. From this event, we can see
that GE always have a strategy on expanding the sector of business
that they are in. GE acquires this strategy from the outside information
and resources, which can be seen from the acquisitions and the CEO
has to do a lot of discussion with the experts and the public for the

advices and suggestions on expanding the business. GE also has its

researchers and experts that are going to research and develop the
assets and skills needed for implementing its expansion strategy.

Strategy Implementation
Because of the resources that GE has is not capable on
expanding towards the bioscience and renewable energy, they had to
do acquisitions with the company that is already running on that track.
GE has selected the company that has strong potential for becoming
the resources for their business expansion. This acquisition strategy
also works on reducing the potential competitors. After acquisitioning
the companies that are needed for the expansion, GE then have the
resources needed for the development of their bioscience and
renewable energy.

The Resources Based View model:

General Electrics business expansion strategy is basically trying

to reach the new potential market it believes it can dominate. Through
the strategy that it has projected, it can be said that they have these
resources on making it happens. Although from the case it is most
likely that GE will be more on the I-O model, it can also be assessed

with the RBV regarding the strategy it implements.

Resources
GE was first known as an electronic company, which then
expands to become a financial company. From this event, we can see
that GE always have a strategy on expanding the sector of business
that they are in. GE acquires this strategy from the outside information
and resources, which can be seen from the acquisitions and the CEO
has to do a lot of discussion with the experts and the public for the
advices and suggestions on expanding the business. GE also has its
researchers and experts that are going to research and develop the
assets and skills needed for implementing its expansion strategy.
Because of the resources that GE has is not capable on expanding
towards the bioscience and renewable energy, they had to do
acquisitions with the company that is already running on that track. GE
has selected the company that has strong potential for becoming the
resources for their business expansion. This acquisition strategy also
works on reducing the potential competitors. After acquisitioning the
companies that are needed for the expansion, GE then have the
resources needed for the development of their bioscience and
renewable energy. The resources that GE has acquired can be valuated
with the VRIN (Valuable, Rare, In-imitable and Non-substitutable)
valuation below.

Resources Valuation:

1. Valuable valuation
Yes, the resources that GE has from acquisitioning the related
companies are very valuable for implementing the business
expansion strategy. For instance, we can see that Amersham has
its laboratory resouces that has been known for its researches
since 1940. This was to prove that the public already knew the
capabilities of the companies acquisitioned by GE.
2. Rare valuation
Yes, based on the research, it can be seen that the resources that
GE trying to acquire are most likely considered being rare. As this
sector of industry is not on the trend. Because if its rarity, GE
believed that having this kind of resources will help them on
acquiring the future market.
3. In-imitable valuation
Based on the advanced technology development researches that
it will conduct, it can be said that the research itself will require a
lot of cost for GE.

This strategy also works on reducing

competitors that are trying to enter the market so that GE can

acquire the above average returns. Because of its costly
researches, GE will probably generate products that are costly to

imitate as it has been through the costly processes. GE is also

known as a premium company with the premium product, so it
can be said that it will most likely produce premium products that
are costly to be imitated.
4. Non-substitutable valuation
It can be said that the products that GE going to produce is not
that non-substitutable, for the bioscience that will be much more
on the biomedical, GE HealthCare (The name for its sector of
biomedical) will develop products that are most likely an
innovation in the medical industry but we cannot forgot about
the traditional medication and the current medication. There will
be some people that are not really comfortable with the
advanced medical technology and prefer to use the traditional
ones. So from this point of view, we could say that GE upcoming
products will be an advanced one but not non-substitutable
products

Conclusion:

After all the valuations by the I-O and RBV models towards the
General Electrics business expansion strategy, we could say that

actually the potential strengths of GE are really promising. It really has

the opportunities on achieving the market they are targeting which
means the above average return. But what is really happened is that
GE was suffered from the decrease of their revenue. By 2008, Standard
& Poors and Moodys are downgrading the GEs rating from AAA to
AA+. S&P said that the downgrades occurred because it expects the
worsening economy to cause GE's holdings to deteriorate in value.
GE's finance arm GE Capital Corp. (GECC) also received a onenotch downgrade to AA+. S&P analyst also said that he believe that
GECC is under increasing earnings pressure, due to the recent sharp
deterioration in general economic conditions around the globe.
It's not that much of surprise, because of their debt situation and
the amount of fear that's out there," said Larsen, who runs a mutual
fund with GE as its top holding. "In the current environment, with that
amount of debt, it's probably been due for a while. Shares of GE
(GE, Fortune 500) soared more than 11% in early trading. Bergenson
said investors felt relief after worrying GE would be downgraded by
several notches instead of just one. Based on this statement, we can
say that the GE runs the business by the loans and debts that they
have and S&Ps and Moodys analyze that their revenues are
decreasing. This makes S&Ps and Moodys to doubt the capability of
GE as the AAA-rated company.

So the question would be can GE makes it way back to be an

AAA-rated company? Based on my analysis, I would say yes, they
could. The reason is that even though GE must have suffered the
humiliation and all the depressing factors, GE already prepared for it. It
was actually ready to be downgraded to be an AA+ if it has to. They
stick to the plan that they have designed and the potential that its
resources have. This is because we all know that this kind of business
sector is not dedicated to the current years but most likely to be a big
thing in the years ahead. GE plan is actually really amused me as
many other must havent aware to this type of business. I believe that
this bioscience and renewable energy will be one of the most
concerned things in the future technological industry.

Question 2 Answers

Diversification strategies and examples of it:

1. Concentric diversification
Executed by adding new products that are still associated with
existing products both equality linkages in technology, the use of

shared facilities, or network marketing the same. Guidelines success of

concentric diversification strategy is competing in the industry with no
or low growth, the existence of new products related to existing
products can increase sales of existing products, new products are
offered at competitive prices and existing products are currently in the
decline phase of the product lifecycle It has a strong management
team.
The example of a company that applied concentric diversification
is PT. Telekomunikasi Indonesia PLC. It has the Telkom Group, which
consists of PT. Telekomunikasi Seluler (Telkomsel), PT Telekomunikasi
Indonesia International (Hong Kong) Ltd. (Telin Hong Kong), PT
Telekomunikasi Indonesia International Pte. Ltd. (Telin Singapore) and
Telekomunikasi Indonesia International Australia Pty., Ltd. (Telkom
Australia). The Telkom Group is a group, which has concentric
diversification as most of it is related to the communication business
and network but it focused on each own customer.

2. Horizontal or related diversification

The company adds new products/services that sometimes
technologically or commercially not related to the existing business
line but might be appealing for the current customers. This strategy is
to increase the firm's dependence on certain market segments.
Horizontal diversification works if the current customers are loyal to

the current products and if the new products have the exact quality as
the current business line. The new product also has to be promoted
and priced at the same level with the current business line. In addition,
the new products are marketed to the same economic environment as
the existing business line. The advantages of this diversification
strategy is that it has the opportunity to achieve economic scope and
economies of scale but it also has advantages such as controlling and
coordinating the complexities of different kind of products in the
related business.
The example of a company that applied horizontal diversification
is PT. Kompas Gramedia, an Indonesian company that was first
established as a newspaper company which later on expand its
business. Now its core business enterprises remain in the information,
communication and education business but the group has diversified
interests including hotels (the Santika premium nationwide chain of
hotels), development of real estate (PT Permata Media Land), tissue
paper production (PT Graha Kerindo Utama), and travel bureau (PT Ina
Media Wisatamas)

3. Conglomerate diversification
The addition of new products and marketed it in the new
market that is not associated with the current. The basic idea of this

strategy is mainly profit considerations. To ensure effective

conglomerate diversification strategy, there are some guidelines that
need to be followed, namely are there was a decline in sales and profit,
managerial ability and capital to compete in the new industry, created
financial synergies between the companies acquired by the acquiring
market for the product is now saturated, there are opportunities to
purchase or acquire a new business that is not related to that have
attractive investment opportunities and if there is an antitrust action
on the business that is concentrated in a single business.
The example of a company that applied conglomerate
diversification is Lippo Bank PLC. in Indonesia as the forerunner of the
Lippo Group. Lippo Group controls in excess of $15 billion in assets
with significant investments in retail, media, real estate, banking,
natural resources, hospitality, and healthcare industries. The group's
flagship operating platforms include OUE Singapore, Lippo Karawaci
Indonesia, Hypermart, Matahari, Siloam Hospitals Indonesia, First REIT,
LMIR REIT, Auric Pacific, and Lippo Incheon Development.