Strategic planning makes success repeatable - GE Capital

GE Capital

Strategic planning makes success repeatable

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GE Capital


The early 2000s were a critical time in GE’s strategy for narrow-body aircraft engines. A wave of contract renewals was on the horizon, which could have changed the competitive dynamics of the market for decades. The Commercial Aircraft Corporation of China (COMAC) was a growing force in the market, yet traditional giants Boeing and Airbus remained. The market for new engines was expected to be as large as $50 billion. The question for GE was where to place our bet. External observers were convinced we could not pursue all three aircraft makers, but through our strategic planning process, the idea kept returning. China could not be ignored. It was expected to become the largest aviation market in the world. We also believed that fuel price volatility, continued margin pressure on airlines, and environmental requirements would create a huge opportunity for engines that provided lower fuel burn while maintaining the relatively simple designs that reduce maintenance costs. Noise and emissions reductions in particular were expected to require a major advance in technology. Strategic planning makes success repeatable

If we could develop such an engine, we thought we could potentially create a significant increase in market share. This strategy led us to design the LEAP-X engine from scratch, which is now the most fuel-efficient engine in its thrust class. In the last two years, it was selected as the sole Western engine for COMAC’s new C919 single-aisle airliner, as one of two engines available for the Airbus A320neo, and as the only engine for Boeing’s reengined narrow-body 737.

Strategic planning helps take the luck out of success. The process that created the strategy for the LEAP-X engine has produced repeated successes over many years at GE, and it involves three main elements: a clear vision from GE’s leadership, a yearly operating rhythm that helps ingrain strategic thinking into our business, and a culture of growth that fosters innovation and clear thinking about performance.

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GE Capital through technical leadership drives growth. That belief translates into sustained technical investments, people development, and the constant refining of our process for innovation. A third priority is growing services and software. This priority helps to coordinate multiple GE businesses around what we believe is a $100 billion potential in infrastructure software segments, such as healthcare information technology, Smart Grid, rail movement planners, engine monitoring, and factory productivity. The remaining three strategic priorities are leadership in growth markets such as China, India and Latin America; expansion from core markets into adjacent markets; and creating value in specialty finance. A clear vision from the top In recent annual reports, our CEO, Jeffrey Immelt, describes six strategic themes that will propel our growth for decades. Since we first envisioned them, there have been adjustments, for example, to meet the challenges of the global financial crisis. But, overall, the themes have remained a remarkably stable signpost for all our strategic decisions. They are united by a single question: “How does GE continue to grow?” The first answer to that question is: by creating market solutions for tough societal problems. Rising costs, for example, are a major concern for health systems around the world and particularly in the United States. The key question for the leadership of GE Healthcare is how we can improve efficiency in delivery without sacrificing quality or access. In addition to solving problems for customers and society, we believe that launching great new products


Each business within GE considers how it can drive the six strategic priorities. In aerospace, for example, the focus on growth markets and technical leadership became the major strategic decision, discussed in the opening summary, which led GE to become the sole provider of narrow-body engines to Comac. The ability to execute quickly and broadly We believe that one of our strengths is being a fast, big company. To maintain this agility, we develop processes aimed at making our size a facilitator of growth, not bureaucracy. Our planning process creates an operating rhythm that is designed to repeatedly test ideas and then quickly turn decisions into reality.

We develop processes aimed at making our size a facilitator of growth, not bureaucracy.

Exhibit 1. Six strategic themes that guide GE (Source: GE 2010 Annual Report)

Our strategic plans are known as growth playbooks, developed in the first six months of every calendar year. Starting in January, we consider how we have performed against the previous year’s goals. Then, we conduct two months of analysis that considers the present and future of our market and our strengths and weaknesses. In some cases we may forecast 10 to 15 years ahead, but in businesses with long product cycles, such as aerospace, we will look ahead 20 years or more. We call in external experts to test our assumptions and help minimize groupthink. Towards the end of our market analysis, we start “dreaming” about new growth ideas, and then we create a vision for the changes we want to make to the business and how we will make them, i.e., the strategy. This requires further thinking about tactics, specifically the critical actions we need to take to realize our strategy, how we will measure and maintain progress, and how we will address major potential downsides. Finally, we consider the threeyear financial implications and measures of our plan. All of our conclusions and assumptions are tested again at our annual strategy session at the end of May.

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GE Capital Overview of strategic process at GE

Growth Playbook • Focus on evaluating the past and defining the future strategy and strategic priorities for GE - Understanding of environment and competition - Generation of ideas - Development of action plans

Operating Rhythm • Focus on the development of an annual operating plan based on the strategy defined by the growth playbook - Budgets - Investment funding - Sales projections - OM / cash-flow commitments

• Established for a period of three years, and revised on an annual basis Exhibit 2. The strategic planning process at GE includes two major components (Source: GE)

One month later, the heads of all businesses present their final playbooks to senior management. Based on the feedback from GE’s senior management and board, we move quickly in two annual sessions at the end of July and August to create the operating plans that implement the growth playbooks in the coming year. A growth culture We foster a competitive meritocracy where the best performers win, but only when they also embody GE values. One of these values, being a humble listener, helps in the open exchange and testing of ideas during strategic planning. We learned some difficult lessons in the global financial crisis, but the respect for alternative points of view helped us make many decisions that reduced our risk exposures ahead of the crisis and reduced our costs significantly. We encourage our people to share ideas through regular meetings that run parallel with strategic planning and we foster conversations about strategy. Our Corporate Executive Council, which meets four times per year, includes about 40 leaders from across the company, including the heads of businesses, GE senior management, and representatives of legal, finance, operations, sales, and marketing. Our Commercial Council draws together about 20 leaders in marketing, sales, human resources, and communications to generate ideas for increasing growth, such as GE’s innovation and team training programs. We also formed an Operating Council that focuses on product management, material cost-out, simplification, Lean Six Sigma, and capital allocation.


Since all of GE moves in unison through strategic and operational planning, it is much easier to spread and implement good ideas from these initiatives than GE’s size would suggest. A single best practice can be rolled out quickly, generating significant savings, earnings, and revenues for investors. We publicize such results internally to foster healthy competition and inspire all GE employees to help develop the next great idea.

Our leaders are expected to be growth leaders, not just productivity leaders. To our leaders, we make it clear that they are expected to be growth leaders, not just productivity leaders. GE values are vital to ensuring this growth is sustainable. Through many years of acquisitions, we have learned that many companies focus most of their attention on parts of the business that underperform targets. At GE, we ask the same questions at the beginning of every strategic plan, no matter how the business is performing against its targets: How does this performance compare to industry and overall economic indicators? Why did the business perform the way it did? Do these reasons make sense or do we need to keep investigating? Conclusion We want our leaders to think big and long term. We also want them to be practical, action-oriented managers. Strategic and operational planning is a structured process that helps them connect a vision for growth with quarterly results. Once their strategies are approved, our leaders are empowered and expected to act. In 2010, we generated $20 billion in revenue from businesses in which we were not present in 2000.

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GE Capital The Growth Playbook process evaluates the current state and sets strategy for the future

Contributor Thomas Gentile, Executive Management, GE Healthcare

Growth Playbook Approach

Market Overview

Dreaming

Front-End Effectiveness

Growth Planning

Understand

Generate Growth Ideas

Getting Better

Financial & Compliance

• Environment • Segmentation • Competitive differentiation • Growth initiatives

• • • •

Core Extensions Adjacencies New businesses

• Ability to execute • Initiatives and strategy • Metrics • Dashboard

• CY financial overview • Growth & expense targets • Compliance initiatives • Risk assessment & control plans

Exhibit 3. The growth playbook process evaluates the current state and sets the strategy for the future (Source: GE)

On the way to approval, strategic ideas are questioned and tested at every level of GE before they appear in the growth playbook that goes before senior management and the board. This may sound like a recipe for discouraging innovation, but in a culture that values openness and listening, it actually means ideas have time to breathe and develop. In the early 2000s, for example, it was clear that private label credit cards for retail stores were beginning to lose volume to general purpose credit cards. GE Capital did not want to exit the store card business, but the solution was not immediately obvious. We went through a few years of brainstorming and testing before we introduced a store card into the US market with a Visa or MasterCard affiliation (which allowed the card to operate


as both a general purpose card and a store card). Once it was tested, we quickly rolled the card out in Europe and Asia as well.

GE Capital (NYSE: GE) works on things that matter. GE Capital offers businesses and consumers around the globe an array of financial products and services. Providing more than money, GE Capital brings insight, knowledge and expertise to every loan and lease. Not just banking. Building. For more information, visit www.gecapital.com or follow company news via Twitter (@GECapital).

Copyright © 2012 General Electric Capital Corporation. All rights reserved.

Strategic ideas are questioned and tested at every level of GE. Today, the business remains a great success, but that success does not go unquestioned. We scrutinize good and bad results alike because we view performance as something to be understood and repeated. In the end, we believe this is the heart of strategic planning—a feedback loop that continuously refines our approach to business.

This publication provides general information and should not be used or taken as business, financial, tax, accounting, legal or other advice. It has been prepared without regard to the circumstances and objectives of anyone who may review it; therefore, you should not rely on this publication in place of expert advice or the exercise of your independent judgment. The views expressed in this publication reflect those of the authors and contributors and not necessarily the views of General Electric Capital Corporation or any of its affiliates (together, “GE”). GE does not guarantee that the information contained in this publication is reliable, accurate, complete or current, and GE assumes no responsibility to update or amend the publication. GE makes no representation or warranties of any kind whatsoever regarding the contents of this publication, and accepts no liability of any kind for any loss or harm arising from the use of the information contained in this publication. “GE,” “General Electric Company,” “General Electric,” “General Electric Capital Corporation,” the GE Logo, and various other marks and logos used in this publication are registered trademarks, trade names and service marks of General Electric Company. You may not use, reproduce, or redistribute this publication, any part of this publication, or any trademark or trade name without the written permission of GE.

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