GE and Competitive Analysis

James OldroydKellogg Graduate School of ManagementNorthwestern University

j-oldroyd@northwestern.edu801-422-7888650 TNRB

2

Early experiments in transportation

3

Costs

GE

Necchi

Matsushita

Sanyo, Hitachi, Toshiba

Embraco-Matsushita

48

32-38

32-38

Under 30

24

17

1.7

1.4

65

25

25

35

Cost Per Hour Minutes

4

New Costs

Labor

Material

SG&A

Overhead

US Plant

Labor

Material

SG&A

Overhead

Non-US Plant

Class Summary

GE’s Experience Illustrates:• Benchmarking (relative cost position analysis) is a key first step to make vs. buy and plant location

decisions.• Key question to ask: “Are we as good as the best in the world at this activity?”• Be careful about letting “nationalistic” ideals unduly influence decisions (need a geocentric mindset).

Also, understanding the technology is critical for top managers to make the right decisions.Benchmarking Example Illustrates:

• Firms may need a dedicated “competitive intelligence” team to continuously benchmark competitor practices.

• Focus on key cost areas (80/20 rule). Don’t waste resources• Detailed analysis (data) on processes and practices (visits, interviews) is necessary to understand

what processes to actually change/adopt.

BENCHMARKING(RELATIVE COST POSITION ANALYSIS)

COMPARISON OF PROCESSES AND PRACTICES TOIDENTIFY LOW COST PRACTICES AND QUANTIFY TARGET COST SAVINGS POTENTIAL

• PLANT VS. PLANT• PROCESS VS. PROCESS• MACHINE VS. MACHINE• EMPLOYEE FUNCTION VS. EMPLOYEE FUNCTION

SG&A

OverheadDirect Labor

Material

SG&A

OverheadDirect Labor

Material

$200

150

100

50

0Client Plant

CompetitorPlant

Man

ufac

turin

g C

ost P

er U

nit

(Dol

lars

)

Benchmarking

Raw Materials (material per piece; scrap per piece)

Labor (number of direct/ indirect employees, wages and fringe rates)

Capital Investment (building/ machinery type, age, & cost)

Transportation (cost per container, pieces per cont.)

Advertising

Corporate Overhead (SG&A expenses; number of sales/ officers)

Material analysis, commodity mkts, suppliers, purchasing.

Chamber of commerce, Dept. of Labor form EE0-1; corporate phone books, headcount, past employees.

Chamber of commerce, contractors, machinery mfgs.

Common carriers, physical examination, proc. & supply.

Leading National Advertisers (LNA); count.

Annual reports, former employees.

Expense Item Sources

8

The modern lion

9

“Matthews…we’re getting another one of those strange ‘aw blah es spanyol’

sounds.”

10

Today

http://www.geappliances.com/arctica/