A diversification strategy is one of the main approaches used by large-scale firms to expand to other areas in terms of products or locations. Therefore diversification is opted for by businesses after they have established a reputation in their domestic market. Although diversification is risky and requires concrete market research, many multinationals have survived it and become reputable globally. Let us know What are the ‘GE Diversification Strategy’.
General Electric (GE) Diversification Strategy
General Electric Company is one of the well-known multinational conglomerates and has existed for more than 125 years. The company has expanded in many countries and operates in various portfolios. It is through diversification that GE has invested in a different class of assets as a way of minimizing portfolio risks. For many years, the company has used a diversification strategy as a generic competitive strategy (Porter’s competitive strategy) that has helped it spread throughout the world.
The company started as a light bulb manufacturing company. In its first years after formation, GE began its diversification approach in early 1892 when it merged with the other two electric companies. So over the years, GE has grown into a big multinational company that operates in different industries. The company has acquired other companies operating in various sectors through merger and acquisition. Further, GE started entering into different industries through product diversification. Diversification strategy is one of Porter’s competitive strategy models that a business can adopt to become to drive competitive growth (Porter, 1997). After the company successfully integrated operation into the electric appliance, it started to enter another field that is related to electronics and later to other unrelated industries.
Diversification Strategies Used by GE
There are different diversification options available for a firm to enter new industries. A firm may use vertical integration which involves moving into a new value chain which can be done through a merger or acquisition. Also, a firm may expand to a new industry solely without involving other firms. The diversification strategy can be clearly demonstrated through Ansoff’s product matrix (Ansoff, 1958). Based on Ansoff’s model, a business can approach growth by either adjusting the product or adjusting the market. In either approach, the business will penetrate a market, develop a product, develop a market or diversify. Therefore, the diversification can be either for related or unrelated products or markets. The diversification strategy is termed as the riskiest among other strategies but it limits the level of damage involved when one product or market is affected. GE has used diversification to complement its differentiation competitive strategy especially when the company is adding a new product or new industry into its portfolio. The following are the ways GE has diversified over the years by analyzing different diversification strategies below;-
GE’s Concentric Diversification strategy
This diversification approach involves bringing into the market new products that are closely related to the existing market. It involves adding similar products to the existing product line. For example, the GE Aviation sector started as steam turbine work in the 1900s. Through intensive research and development, GE invested in technology for high-attitude flight by concentrating on supercharge-driven aircraft engines. Through this, the company added an exhaust-turbo-driven system which provided a better performance that the previous product. Later the company introduced jet engines in the product line in the US market. This contributed to the growth in demand for military aircraft and led to the opening of a new manufacturing facility that could produce more products. The product diversification led to the production of different engine products such as J73, J79, and other successful products that were developed for the market. From this, GE diversified its stream turbine products business to the commercial aviation power plant and GE Aviation today. Through concentric diversification, GE has introduced new products to its different product lines for the different brands the company is providing. This approach is one of the major diversification strategies that facilitate GE’s continuous growth over years.
GE’s Horizontal diversification strategy
The horizontal diversification strategy involves adding a new product that is not related to the products or services the company is already providing, but to the existing clients. Taking a big picture of the entire GE products, the company started as a Lightbulb Company in the electrical industry. Over the years, GE moved into the production and provision of products and services that are not related to electrics. Such unrelated industries include healthcare, aviation, finance and capital, power and water, additive, research, and digital. These sectors have no common attributes with each other. Though such unrelated diversifications are risky and involve a lot of research and development, the advantage of it is that they compensate each other in case of weak performance in one of the unrelated markets. This is noted from GE’s effort to divest units and unrelated companies or segments that are not performing to raise revenue to invest in new business avenues.
GE’s Conglomerate Diversification strategy
This type of diversification entails adding new products or services that are not related to the existing products. However, the added unrelated product does not have any technological or commercial similarities to the existing ones. This diversification approach involves entering new markets and setting existing products to a new consumer base. GE has been a king of conglomerate diversification. The company has mitigated risks by diversifying into different industries and operating under different segments such as GE Power, GE Aviation, GE Healthcare, and GE renewable energy among others. This makes GE a multi-industry company since all the segments operate under the same corporate group. Through this diversification strategy, GE grew its market value to $594 billion in 2000 before it started declining.
Among these diversification approaches, the conglomerate is the riskiest strategy. It involves a lot of research and development, and advertisement costs. However, after more than 129 years of expanding the business through a conglomerate diversification strategy, GE has decided to end the conglomerate structure. The company intends to draw its focus on three main industries which are Aviation, Healthcare, and Energy industries.
GE’s diversification strategy takeaways
GE’s diversification strategy has helped boost the company’s resilience, making the business one of the biggest diversified multinational companies in the world. The company has used different diversification approaches to attain growth. This strategy has been GE’s generic growth strategy for competitive advantage that has made the company grows in different products and markets. However, diversification needs to remain relevant to the industry the business decides to diversify into since it is a risky approach.
Reference
- Ansoff, H.I., 1958. A model for diversification. Management science, 4(4), pp.392-414.
- Porter, M.E., 1997. Competitive strategy. Measuring business excellence.
