General Electric Company (GE) maintains its status as a major industry influencer through strategies that support growth and competitiveness. These strategies are the conglomerate’s responses to external factors in industry environments, such as the ones identifiable through the Five Forces Analysis model. Michael Porter’s Five Forces Analysis model is an external analysis tool for understanding external conditions of businesses. The analysis evaluates external factors and the intensity of their influence on the company in question. In this case of General Electric, various industry environments are considered, corresponding to the energy, oil and gas, electric lighting, transportation, aerospace, aviation, and healthcare industries. The external factors based on such a multi-industry business environment require GE’s strategic management to address strong competition, among other concerns. For example, as General Electric focuses on growing its current operating segments, appropriate strategies are needed to maintain competitive advantages, such as brand strength and research and development, as shown in the SWOT Analysis of General Electric Company. With diverse global operations, the company is capable of enhancing its competitive advantages through strategic changes in managing the business.
Strategy formulation based on the results of this Porter’s Five Forces analysis of General Electric Company ensures that managers account for the most relevant issues facing the business. In this external analysis context, such issues represent the situation of GE’s external business environment of diverse industries. For example, the issues reflect the trends affecting General Electric in the aviation industry environment and the electric lighting industry environment. GE’s management approaches must consider the external factors determined through external analysis tools like Porter’s Five Forces Analysis. To ensure long-term competitiveness, strategic management must align with the impacts and intensities of external factors on General Electric.
Summary & Recommendations: Five Forces Analysis of General Electric Company
Summary. The results of this Porter’s Five Forces analysis reveal the importance of competitive rivalry in influencing General Electric and its industry environment. As the force with the highest intensity, competition should take priority in GE’s strategic decisions and management. Based on this external analysis, the other forces are also significant to General Electric’s business despite their relatively low intensities. For example, the moderate intensity of the bargaining power of suppliers requires that GE should consider this force in strategy formulation for supply chain management. In summary, this Porter’s Five Forces analysis of General Electric Company shows that the external factors in the relevant industry environments create the following forces and their intensities:
- Competitive rivalry or competition – Strong force
- Bargaining power of buyers or customers – Moderate force
- Bargaining power of suppliers – Moderate force
- Threat of substitutes or substitution – Weak force
- Threat of new entrants or new entry – Weak force
Recommendations. Considering the high significance of competitive rivalry in General Electric’s industry environments, the main recommendation is to enhance the competitive advantages of the business. For example, improving brand image can add to GE’s competitiveness. Also, enhancing General Electric’s research and development capabilities should correlate with higher competitive advantage. In considering the other external factors in this Porter’s Five Forces analysis, another recommendation is to implement strategies for increasing customer loyalty. Public relations approaches in General Electric’s corporate social responsibility strategy are essential in this regard. Such strategies address the bargaining power of customers. To address the bargaining power of suppliers, GE can implement a supplier diversity program that minimizes overdependence on one or a few suppliers in the global market. Such a program must account for possible changes in supply chain management and General Electric’s operations management approaches. Despite their low intensities determined in this external analysis, the threat of substitutes and the threat of new entry are also issues for managerial consideration in GE’s strategy formulation. All of these strategies must align with General Electric’s generic competitive strategy and intensive growth strategies, while remaining pertinent to the dynamics and characteristics of the oil and gas, energy, electric lighting, aerospace, aviation, transportation, and healthcare industries.
Competitive Rivalry or Competition against GE (Strong Force)
Competition reflects the degree of competitive interactions among firms, including General Electric Company, in the same markets or industry environments. This component of the Porter’s Five Forces analysis model evaluates the external factors responsible for competition that affects the business, which in this case is GE. Strategic management at General Electric must consider the following external factors and their intensities responsible for the strong force of competitive rivalry:
- High aggressiveness of firms (strong force)
- Moderate switching costs (moderate force)
- Moderate number of firms (moderate force)
The high aggressiveness of firms corresponds to a strong force on General Electric Company and its industry environment. For example, firms like Siemens and 3M are typically aggressive in competing, especially in innovating and marketing their products. This external analysis also considers moderate switching costs, which have a moderate contribution to competitive rivalry in General Electric’s industry environments. This external factor represents the moderate consequences of switching from GE products to other firms’ products, such as the moderate challenges customers experience when switching from General Electric’s engines to other engines available in the transportation industry. On the other hand, the moderate number of firms has a moderate impact on the business. A larger population of firms would create stronger competition and requires higher prioritization in General Electric’s strategic management. Overall, the external factors in this component of the Five Forces analysis maintain the strong intensity of competition that General Electric experiences.
Bargaining Power of General Electric’s Customers/Buyers (Moderate Force)
The bargaining power of customers refers to the influence that customers have on General Electric Company and its industry environments, such as the electric lighting industry environment and the transportation industry environment. This component of the Porter’s Five Forces analysis of GE assesses the ability of buyers or customers to affect prices and business performance. The following external factors and their intensities are pertinent strategic considerations in General Electric’s management of the bargaining power of buyers:
- High quality of information (strong force)
- Moderate switching costs (moderate force)
- Low price sensitivity (weak force)
Customers have access to high-quality information about the products available in General Electric’s industries of operations. For example, information about electric lighting product features and functions, and information on known issues identified in use cases are available to customers through online reports. This external factor empowers GE’s buyers in making purchase decisions. Thus, high quality of information increases the strategic significance of the bargaining power of customers in General Electric’s business. This external analysis also shows that the industry environment is subject to the moderate effect of switching costs. For instance, the intensity of this external factor corresponds with the moderate likelihood of customers switching from General Electric’s products to competitors’ products. In relation, the low price sensitivity of customers reflects the low probability of buyers shifting to other brands when GE increases its prices. This condition is especially observable in the aviation, healthcare, and transportation industries. In considering the external factors identified in this component of the Porter’s Five Forces analysis of General Electric Company, managers must include the moderate bargaining power of buyers in strategy development.
Bargaining Power of GE’s Suppliers (Moderate Force)
The bargaining power of suppliers is a significant force in this external analysis of General Electric Company and the industry environments of the business. This component of the Porter’s Five Forces analysis model determines the strategic impact of suppliers on GE’s performance. It is essential that General Electric’s management address the moderate bargaining power of suppliers, based on the following external factors and their intensities:
- Moderate population of suppliers (moderate force)
- High overall supply (weak force)
- Moderate size of individual suppliers (moderate force)
Suppliers have a moderate population in most of the industries where General Electric conducts business. For example, the aviation industry has only a moderate population of suppliers. Nonetheless, the intensity of the bargaining power of suppliers on firms like General Electric is weakened because of the high overall supply, such as in the electric lighting industry. In this external analysis, the moderate size of individual suppliers is also considered. Larger suppliers have higher bargaining power against GE. Thus, this external factor imposes a moderate force on General Electric. In this component of the Five Forces analysis, the external factors create the moderate bargaining power of suppliers. General Electric’s management must include this force as one of the major strategic concerns affecting the business and its industry environments.
Threat of Substitutes or Substitution (Weak Force)
Substitution threatens companies like General Electric by competing for customers who might prefer to use substitutes available in the market. This component of the Porter’s Five Forces analysis model evaluates the impact of substitutes on GE and its industry environment. Thus, substitutes are among the factors that shape strategic management in businesses. General Electric Company’s managerial decisions are subject to the weak threat of substitution, based on the following external factors and their intensities:
- Moderate switching costs (moderate force)
- Low performance of substitutes (weak force)
- Low availability of substitutes (weak force)
Based on the moderate switching costs, customers are only moderately likely to switch from General Electric’s products to substitutes. This external factor has a moderate contribution to the threat of substitution facing the business and its industry environment. On the other hand, low performance represents the limited capabilities of substitutes compared to GE products. For example, substitutes in the oil and gas market have lower performance compared to the expert products/services available from General Electric Company. This external analysis also points out the low availability of substitutes in many of the industries where GE operates. This external factor has a weak contribution to the force of substitution. The external factors in this component of the Porter’s Five Forces analysis of General Electric show that the weak intensity of the threat of substitutes is a minor issue in the company’s strategic management.
Threat of New Entrants or New Entry (Weak Force)
New entry is a threat in the industry environment because of potential increases in competition with established firms like General Electric Company. This component of the Porter’s Five Forces analysis of GE assesses the degree of influence of new entrants on the firm and its industries of operations. New entry can alter market dynamics and the corresponding strategies and management practices of businesses involved. The following external factors and their intensities are the basis for the weak threat of new entry on General Electric:
- High cost of entry (weak force)
- High cost of brand development (weak force)
- High economies of scale (weak force)
The force of new entrants against General Electric is weak partly because of the high cost of entry. This external factor requires that new firms have high business capitalization and financial resources to establish operations that can effectively compete against firms like GE. In relation, the high cost of brand development is included in this external analysis because it limits the influence of new entry on General Electric and the industry environment. For example, new firms need to allocate a high percentage of their financial resources to strengthen their brands, relative to established brands such as the GE brand. The high economies of scale further weaken the threat of new entry. For instance, established businesses like General Electric benefit from high economies of scale, which new firms likely lack. This component of the Five Forces analysis presents the weak intensity of the threat of new entry. Thus, this force is a minor strategic management issue facing General Electric Company.
References
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- U.S. Department of Commerce – International Trade Administration – Energy Industry Spotlight – The Energy Industry in the United States.
- U.S. Department of Commerce – International Trade Administration – Aerospace Spotlight – The Aerospace Industry in the United States.