GE and Competitive Analysis James Oldroyd Kellogg Graduate School of Management Northwestern University j-oldroyd@northwestern.edu 801-422-7888 650 TNRB

Early experiments in transportation Globalization: driven by advancements in transportation technology Early experiments in transportation

Costs GE Cost Per Hour Minutes 48 17 65 Necchi 32-38 Matsushita 32-38 1.7 25 Sanyo, Hitachi, Toshiba Under 30 25 Embraco-Matsushita 24 1.4 35

New Costs Labor Labor Material US Plant Material Non-US Plant SG&A Overhead Non-US Plant Material US Plant SG&A Overhead

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 TO IDENTIFY LOW COST PRACTICES AND QUANTIFY TARGET COST SAVINGS POTENTIAL PLANT VS. PLANT PROCESS VS. PROCESS MACHINE VS. MACHINE EMPLOYEE FUNCTION VS. EMPLOYEE FUNCTION $200 150 100 50 SG&A Overhead SG&A Direct Labor Manufacturing Cost Per Unit (Dollars) Overhead Direct Labor Material Material Client Plant Competitor Plant

Benchmarking Expense Item Sources 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.

Globalization: also driven by communications technology The modern lion

Key Globalization challenges: differences in language “Matthews…we’re getting another one of those strange ‘aw blah es spanyol’ sounds.”

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