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Stanford GSB Sloan Program Strategic Management

Stanford GSB Sloan Program Strategic Management. 17: The Role of Corporate General Electric. Value of the corporate roof?. GE (under Welch) presents a conundrum: How does perhaps the most diversified conglomerate achieve such high performance? How does it succeed in beating the market?

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Stanford GSB Sloan Program Strategic Management

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  1. Stanford GSB Sloan Program Strategic Management 17: The Role of Corporate General Electric John Roberts

  2. Value of the corporate roof? • GE (under Welch) presents a conundrum: • How does perhaps the most diversified conglomerate achieve such high performance? How does it succeed in beating the market? • Bumblebee • Corporate must be adding value John Roberts

  3. Value of the corporate roof? • Capital allocation: is there a reason to think that corporate executives are better placed than the market to allocate capital among businesses? • Lower cost of capital? • Better information/ability to evaluate? • Account for spillovers John Roberts

  4. Value of the corporate roof? • Human resource allocation: is there a reason to think that corporate executives are better placed than the market to direct the creation and allocation of human resources? • Routines, processes for the development of talent. • Better information/ability to evaluate talent. • Valuation problems in the labor market. John Roberts

  5. Value of the corporate roof? • Welch: articulating a vision, a set of values and direction that orients the disparate portfolio of businesses. • No. 1 or no. 2 • dyb.com • Q: Why do the businesses need this vision? • Q: What happens when the visionary is gone? John Roberts

  6. Value of the corporate roof? • GE under Welch suggests that it is possible for an organization to have a competitive advantage in superior management. Note that such a CA may be more easily cultivated in a corporation that is not synergistic in the sense of leveraging strategic assets. • Implication: good managers beat the market? John Roberts

  7. Effecting Change • Effecting significant change in a (healthy) corporation is extremely difficult. Create crisis? • To the extent that the change threatens the existing architecture, culture, and routines, more may be lost than gained. • How do we identify core businesses without eroding the incentives of non-core businesses? • How does a no. 4 manager react to the demand that businesses be no.1 or no. 2? John Roberts

  8. Welch’s Role • GE runs very hard-edged processes and routines. These may encourage diligence, cleverness and hard work, but they probably do not inspire loyalty or enthusiasm • Welch’s human touch and personal role complemented the formal processes • Should leaders be heroic? John Roberts

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