Friday, April 03, 2009

The Future of GE

Business Week has a great article on Immelt's strategic options at General Electric. The author, Jena McGregor, makes the case out that Immelt's options are indeed rather limited at this point. For instance, McGregor points out that some investors might believe that the company should be broken up, that the whole is no longer worth more than the sum of the parts. However, given the state of credit markets, it's hard for Immelt to find willing and able buyers for many of the GE businesses at this point.

While McGregor is correct about Immelt's short term options, I think a break-up of some kind is potentially in GE's future as the financial markets cover. Professor Stewart Thornhill of Ivey Business School is correct when he says in the article that companies do face diseconomies of scale at some point. At $180 billion in revenue, it's both hard to manage such a large and complex organization, and it's hard to grow that top line by a substantial percentage. There's simply a large numbers problem there. In fact, one might argue that Immelt's growth ambitions have been too ambitious all along. Trying to grow such a large organization at rapid rates can cause strategic missteps. Moreover, it ignores the diseconomies of scale problem that Thornhill points out.