GE Health Care Case

Executive Summary

General Electric Healthcare was created in 2004 when General Electric (GE) acquired U.K. biosciences firm Amersham. Its predecessor organization, General Electric Medical Services (GEMS) originated as an x-ray business in the 1940s. Jeff Immelt took over GEMs in 1997 and took steps to grow the business from a $4 billion company to a dominant force in the worldwide diagnostic imaging market. Immelt stepped up acquisitions including a company that formed the basis for GMS-IT, a subsidiary focused on healthcare IT. One of his most significant initiatives was the Global Products Company (GPC) initiative that focused on cutting costs by shifting manufacturing, design and engineering activities from high-cost to low-cost countries. Under GPC, each product was built in one or two Centers of Excellence (COEs) and shipped anywhere in the world. Between 60% and 90% or products made in a COE ended up being sold elsewhere.[1] GPCs global approach drove manufacturing, R&D, Product Design, Sales, Marketing, and Human Resources strategies with the ultimate goal of saving 10-30% on materials and 50% on labor. In 2000, Immelt became CEO of GE and passed leadership of GEMS to Joe Hogan and charged him with the task of growing the company 20% annually. Hogan modified GPC and adopted an In Country for Country approach to better address country-specific demands within the existing global supply chain logic of GPS. The initiative was spearheaded by an In China For China policy that served as the model for a localized version of the GPC concept that focused on segmenting and developing internal markets and building local management capability.[2] In 2001, GEMS partnered with Amersham and, in 2004, GE acquired the company for $10 billion. Together, GEMS and Amersham became known as GE Healthcare and Amersham CEO William Castell was named CEO of the new company. Castell advocated a shift from a late-disease healthcare model that focused on late-stage treatment to an early-health model that focused on diagnosing and treating diseases in their earliest stage. In order to accomplish this shift, Castell emphasized advances in biology, bytes, and broadband; that is, advances in genomics and related sciences, information technology, and connectivity. The synergy between GEMS and Amersham drove GE Healthcare to become a business that was more focused on healthcare than equipment sales and catalyzed collaboration with pharmaceutical companies. GE expected the Amersham acquisition to generate annual revenue synergies of $350 million to $400 million and cost savings of the same amount by 2008. In 2005, it realized $250 million in revenue and cost synergies. The following year, Hogan succeeded Castell as CEO of GE Healthcare. 1.Was buying Amersham a good idea? Why or why not? Yes, it was a good idea for GE to purchase Amersham. The acquisition was taking shape nicely with 2005 revenue of $15.1 billion and $250 million in realized revenue and cost synergies. Besides becoming a critical piece to GEs financial growth, Amersham was a key component of CEO Immelts plan to rebuild a culture of innovation at GE and ensure its status as a technological leader in the 21st century. The acquisition allowed GE to diverge from their traditional cost-cutting, efficiency, and

earning strategy to focus on growing the company organically through innovation and develop This sounds great on paper but how imagination breakthrough projects that develop new lines of businesses, geographical areas, or do you move a company from what it customer bases for GE. has been doing well (cost cutting) The formation of GE Healthcare (differentiation)? Do you have the after the Amersham acquisition allowed business unit CEO to shift their strategic focus from late disease treatment to early health through the biology, bytes, and proper resources? How does your bandwidth strategy. This has allowed GE to realize the benefits of Genomics and develop technology culture (engineering) make a shift to and equipment that were more clinical and diseased focused. This includes equipment with sharper bioscience? diagnostic images, PET technology, EMR systems and adoption, protein-separation systems, etc. These ventures were all manifestations of the companys new long-term focus on early health intervention as opposed to legacy health equipment development.. In addition, the enormous premium of the acquisition bought GE for a people for the underlying Please see the posted answers strong goodwill. Amersham employees and managers have been loyal and have not lost a single senior different perspective manager keeping intellectual content intact. In addition, the acquisition of Amersham proved to be successful for GE Healthcare in cultivating business relationships. Amersham had long standing relationships with many pharmaceutical companies and these relationships led to future catalyzed collaborations for GE. Amershams biochemical agents have enhanced the GE Healthcare equipment products. These agents have allowed GE Healthcare to pursue more accuracy in imaging with higher sensitivity and specification. Therefore, buying Amersham is a good idea. 2. How does Amersham relate to the core idea behind the Global Product Company that was the essence of GE Medical Systems (the predecessor company to GE Healthcare)? GPCs core idea which was the essence of GEMS was to concentrate manufacturing wherever it could be carried out to exacting standards in the most cost efficient manner. This idea included any part of the world that this could be accomplished. GPC had built a global presence by using this concept. Many key activities contributed to the GEMS GPC model: Manufacturing Each product was built in one or two Centers of Excellence and manufacturing was moved from high-cost countries to low-cost countries. The first years cost savings was approximately 30%. Expectations for these cost reductions would be 10% annually thereafter. R & D and product design Product design should move toward regions that had talented underutilized personnel. Sales Utilize local relationships and expertise to understand each countrys financing challenges. Sales members needed to meet not only with the financial managers, but with heads of radiology departments, technicians, and physicians. Marketing Products would need to be customized to each countrys needs. Even though GPC ideal was to drive down the costs, products still needed to be customized or they would not sell.
into something totally different

Another concept that GPC developed was the In Country for Country which focused on specific countries. One such country was China, where plants that were already in low cost countries were

moved. This In China for China policy was a success and became a model for a localized version of segmenting and developing internal markets and building local management capability. GEMS global markets shared their engineering expertise. Working together promoted better ideas, learning from each other, and created competition, which was good for all concerned. By combining ideas and cultures with this shared engineering expertise, a middling effect occurred. The core cultures remained intact, yet the products become better. One such product was the LightSpeed VCT. This was a CT scanner which was designed by engineers in Wisconsin, Japan, and Israel and programmers in Japan, China, and France. The U.S. wrote the software for the LightSpeed VCT. Amersham complimented GPC and their core ideas and many of their key activities. Since Amersham I disagree. The acquisition of A was located in the U.K., GPC could utilize theirsea change European connections to boost their R & D represented a network of in GEMS and product design resources. One of GPCs other key activities was to use local relationships and strategy of low cost product based expertise to understand each countrys needs.a Amershamssciences marketing would be a good fit to company to premier life sales and GPCs need for customized products for the European market. By acquiring Amersham, the focus. Such a shift was forced on opportunities for the middling effect to occur with their engineering and research teams could create GEMS even though GEMS had numerous successful products. GPCs philosophy of moving production from high cost regions to low neither the personnel nor the cost regions would be helpful for Amersham. Amersham would be a good fit and compliment the core organizational support for such a ideas of GPC.
shift. Even with GEs enormous resources, such a have to take in advance of the merger to ensure 3. What kinds of actions did Immelt and Castell shift proved to be a realized? What must Joe Hogan, in his new CEO role, now do that any potential gains could befailure

to build on their earlier actions? Prior to the merger, GE had beenHowever, asproducer of later primarily a the results hardware and scanning products whereas Amersham focused primarily in biochemistry. GE executives as well as Castell recognized the need to indicated, throwing $$$ into new diversify from a late disease health care model to early-health that focused on diagnosing and businesses does not guarantee treating diseases in their earliest stages. Immelt had a plan to rebuild a culture of innovation and this success. acquisition brought them to the cutting-edge of health care technology by merging two natural complements: imaging which GE specialized in and contrasting agents that was Amershams expertise. This move was part of Immelts GE-wide renewed emphasis on research and development and the acquisition was designed to migrate the firm away from a physics and engineering company to a health care company that was a leader in all areas of life-sciences. This merger allowed GE Healthcare to become more clinical and disease focused business where the hardware was considered a tool by the doctors. GE noted that they expected to generate annual revenue synergies of $350 million to $400 million and cost savings of the same amount by 2008. Castell believed that this new focus to early-health would be continued advances in three areas: Biology, Bytes, and Broadband. Biology would continue to focus on just that, the natural creation of new drugs and therapies while embracing the new fields of genomics and proteomics (the study of hereditary traits). These were cutting-edge fields and GE Healthcare wanted to be at the forefront. The second and third areas, bytes and broadband, go hand-in-hand as they really relate to the digitization and storage of medical images and files. The main idea here was to have all medicalrelated documents stored in digital format available on a moments notice for a health care professional. They expanded on this by developing clinician support systems that healthcare personnel could access for reference and help in diagnoses as well as treatment options.

Joe Hogan had a difficult task ahead of him - his job was to take two business models with completely different perspectives and directives, and attempt to bring them together as one cohesive unit. Clarke summed it up most efficiently in stating he must meld the pharmaceutical business model, which is long term, high risk, and high margin (if successful) with our existing model as an IT/Physics/Engineering company. The essential issues are the basic concepts of the technology side in a short time, new technology will become obsolete. Thus, expensive yet necessary pharmaceutical trials which take years to fulfill requires technology that has a life cycle of 15 months. As Clarke claims, the two business models are divergent from one another, not convergent - a main focus which Hogan was forced to address immediately. To compensate for this, Hogan must shift the companys focus to more viable, shorter term plans of action where even if the technology involved becomes less than superior, the trial would still be a success and able to be utilized. Though these two business models were merged, does not mean that the essentials by which they stand should be left aside. Thus, considering both GE and Amersham were deeply financially involved in CT and MR systems, and protein-separation systems, respectively, these existing business models should not be forgotten. They should instead be continued since these are marketplaces that we live in today, and would therefore become highly profitable. Furthermore, Hogan should continue the acquisitions of companies that benefit the merger - like what IDX represented for GE - as an attempt to add any and all means of synergetic resources to propel the company beyond the competition. Have they achieved the revenue and
profit goals they set out for themselves? Clearly, GE paid too much for A and the results were rather disappointing. Like you have done before, try to present a more balanced approach to the cases, focusing both on pros and cons of your analysis. Grade: 6/8.