Ge Rca Consumer Electronics Business example essay topic

GE / RCA CONSUMER ELECTRONICS: Case Summary During the 1970's and 1980's the once superior conglomerates of the United States faced unprecedented competition with the emergence of cheaper Asian competitors as globalisation set in. Not only were the Asian competitors producing cheaper products but they were also producing higher quality products which many American companies could simply not compete with. As a result many of these companies including GE Consumer Electronics and RCA Consumer Electronics were forced to implement drastic changes in order to survive. Essentially the GE / RCA consumer electronics business (referred to as CE), came about as a by product of a strategic acquisition of RCA, by General Electric, to diversify into the services sector through the RCA owned National Broadcasting Company as well as supplementing its Aerospace and Defence business with technological synergies.

It is important to note that prior to the acquisition of RCA by GE, the consumer electronics divisions of both companies were experiencing significant operational losses. This prompted both to investigate scaling back their operations in these areas and possible exit strategies. The negative stigma attached to the consumer electronics business was further enhanced by the view by GE's CEO, Jack Welch, that Consumer Electronics was not a core business. Despite the corporate disinterest in Consumer Electronics, an industry analysis supported the decision to maintain participation in the business. As a result, management were given the go-ahead to pursue an aggressive in-house manufacturing strategy of TV sets (based on the current RCA TV operations), with the ultimate viability of the project subject to earning a 15% return on assets by 1989. Hence, CE needed to balance its long-term strategies and goals with the need for a turn around in performance in the short-term.

In order for CE to compete effectively at an international level, the following changes to operations strategy were identified... The focus on continual improvement in all product dimensions that were important to customers such as; cost, quality, speed of delivery and product design. (Total Quality Management). Cost reduction through more effective sourcing (The make or buy decision)...

Rationalizing and integrating international operations so as to create greater cost advantages (Supply Chain Management)... Creating greater production flexibility through heightened communications with suppliers, more effective materials handling and component use (Just-In-Time Management). The company's ultimate goal was to assume a "Cost leadership" position within the market place by spreading its production costs over a greater volume (using its superior market share) relative to its competitors. In order to reach this goal the company identified the following problem areas, which needed to be rectified... High union wages and productivity killing work rules in its Bloomington and Indianapolis plants. Reduced capital expenditure since 1981 to levels far below those most analysts believe is necessary to compete effectively in the industry.

Very few interchangeable parts for different colour TV models and therefore ineffective materials management... Higher component costs and poorly designed chassis, creating high electronic costs. Complicated production process and logistics, leading to many scheduling problems. Further impinging on the success of CE's operations, and as previously mentioned, was the need to instigate a turn around in profitability by 1989. It was felt that one key area, tantamount to the reversal of operating losses in the short-term, was to address the sourcing of 650,000 units of medium and large size televisions. Under the current sourcing arrangement, with Japanese firm Matsushita, expected losses for the next year were $46.6 million.

It was thought that the minimization of this operating loss would have a significant impact on the entity's operating income, if it could be coupled with wider cost reduction on all other consumer electronics production. The company examined three sourcing options which included; keeping production of the units with Matsushita, relocating production to a lower cost producer (a Korean firm) and moving production of the units "in-house" to leverage off the current overhead cost cutting strategies. An analysis of the cost structures of the three options as well as intangible costs and benefits yielded the following information... The Matsushita option was the most expensive in terms of total costs, however it provided the most long-term benefits as; union wage negotiations were not compromised, organizational change complexity was minimized and market share was protected... The Korean option allowed for a significant saving in immediate costs, however, it seriously compromised the ability to negotiate favourable union contracts (a key cost issue) and maintenance of market share (a key competitive advantage)... The "In-House" option was the cheapest in terms of total cost, however this was due to the fact that a significantly smaller number of units could be produced due to current production limitations.

This meant a loss of market share as well as an erosion of gross margins. This option did, however, promote the favourable negotiation of union contracts. The strategy that best fit the operational goals as well as promoting the necessary turn around in the short-term, was to keep production of the 650,000 units with the current producer (Matsushita) until such a time as the organization was "fit" enough to produce the units "in-house". Despite, evaluation of the case being difficult due to such limitations as; lack of relevant cost data for the sourcing options, lack of projected revenues and price projections, the oversupply of and non-sequential organization of information, it was found that the case provided significant insights into the challenges of global operations management. This included the themes of; Total Quality Management, Supply Chain Management, Just-In-Time management, Sourcing Strategy (the decision to Make or Buy) and the need for thorough cost analysis.