Harvard Business Review Case Study:
General Electric Medical Systems (2002)

by: Marcel Heide

Con t e n t

1. Introduction  3

2. GEMS Competitive Strategy 3

2.1 Resources Analysis 3
2.2 From Capabilities to Core Competences - Value Chain Analysis at General Electric Medical Systems 4
2.3 Cost leadership, differentiation or “hybrid” - General Electric Medical Systems Competitive Strategy drift 6

3. GEMS International Strategy  8

3.1 Evaluation of GEMS International Strategy 8
3.2 Has GEMS Strategy in China Transformed its Strategy from Global to a More Multidomestic Strategy?  8

Appendices  11

Classifying and Assessing GEMS Resources 11
The global value network  18
The Global Integration /Local Responsiveness Grid 19

Reference List 20

1 . I n t r o d u c t i o n

General Electric Medical Systems (GEMS) is the world’s leading manufacturer of diagnostic imaging equipment and part of the Milwaukee, US-based General Electric. The following evaluation conducts a strategic analysis of its internal resource capability, how it shaped its competitive strategy and a profound evaluation of its international strategy.

2. GEMS Compe t i t i v e S t r a t e g y

2.1 Resources Analysis¹

The resource basis of GEMS is tremendous as shown in Appendix1, but it is not only the resources themselves that makes the difference, it is the potential it offers to create competitive advantage. The financial resources are stunning, but more important is to what they enables GEMS and why it is able to earn a superior profit margin. The firm’s fantastic and long grown income stream lead to an excellent credit rating and this to a huge and low-priced borrowing capacity. GEMS is investing more than half a billion dollar every year in R&D and has a formidable global presence. The technological sophistication and flexibility of plants and equipment is great and builds the burden for a sufficient working supply chain. The excellent reputation makes it easy for GEMS to attract talents and bind them to the company for a long time. This composition of resources offers a wide range of possibilities for GEMS. What the organisational capabilities are and how the resources are working together is shown next.

2.2 From Capabilities to Core Competences - Value Chain Analysis at General Electric Medical Systems.²

The main critical activities, which sustain competitive advantage for General Electric Medical Systems are linkages of capabilities that can be summarized by three main subchains which we refer to as the core competences of GEMS:

1. Managing the value network and concentrating on the value creating activities of General Electric Medical Systems.
2. The learning organisation or how General Electric Medical Systems is keeping entrepreneurial spirit and being an innovative company.
3. Managing relationships or how General Electric Medical Systems is dealing with the global customer.

1. Managing the global value network and concentrating on value creating activities

“Because we buy so many things, the game for us is very much a supply chain game and not a manufacturing game”. Important part of the core competence in this case is the ability to focus on the activities which are your core competences and to look for outsourcing possibilities. In this case GEMS realised that basic manufacturing is not one of its value creating activities. The only manufacturing which GEMS is keeping “in-house” is the proprietary heart of the company’s product and the assembling process because it reflects the current technology leadership and the basis for future innovation through research and development. This manufacturing is centrally important for their own strategic capability and it retains direct control over this important capability. Overall the complex configuration of resources and capabilities within their value network makes integration and interdependencies necessary. Components plants locations in Mexico, India and Israel and specialised engeneering plants in locations as Hungary, China and Korea. The company’s infrastructure is highly dispersed, specialised and interdependent. To manage such dimension and to focus on its value creating activities the proactive learning organisation and the managing of relationship is not easy to achieve and a true competitive advantage over competitors.

[...]

1 See Appendix1

2 See Appendix2