Business Transformation Strategy
GE Capital Woodchester is a leading provider of motor car, equipment, and personal finance in the country of Ireland. They offer the most flexible packages for diverse financial needs and as such, have earned the position of leading the personal and capitol acquisition financial services. GE Capital Woodchester also provides specialized financing and services and they focus on niches including equipment and car leasing, hire purchase and loans to businesses and individuals across Ireland. Headquartered in Dublin, GE Capital Woodchester services the financial needs of its customers through its regional sales centers and extensive dealer and partner network.
GE Capital Woodchester is a wholly owned subsidiary of GE Capital. With assets of more than U.S.$425 billion, (gecapitol.ie, online) GE Capital is a global, diversified financial services company with 28 specialized businesses worldwide. GE Capital has had an enviable record of growth over the past decade delivering value added services in equipment management, mid-market financing, specialized financing, specialty insurance and consumer services. GECW is part of one of the largest financial services companies in the world with over 60-year’s experience. GE Capital has one of the strongest capital positions world-wide with an AAA credit rating, all of which help us provide powerful benefits to our customers. (gecapitol.ie, online)
The company has raised to its position thorough a unique market strategy. Because there are not auto manufactures in Ireland, all vehicles are imported and sold through dealerships and small business operations. The cost of financing the inventory is carried by GECW. The company carries the expense of purchasing and shipping the vehicles to the country, and in return they have the first rights to the commercial paper through which the dealerships sell the vehicles to the customer.
This strategy has been very successful. It has allowed GECW to b e a partner in creating businesses which could not have paid to import and sell vehicles with their own resources. GECW has taken the position in the business relationships of making the success of the car dealers possible. This benefactor relationship has helped the company build solid relationships during the past 2 decades, and is just as responsible for the company’s success in Ireland as the business practices of loaning money at interest.
However, two significant pressures are affecting GECW, and eroding the company’s profits. The first is the outside influence of competitors entering the marketplace. While GECW is the market leader in point of sale auto finance, the smaller competing firms have begun to offer the same financing programs. Some of these smaller firms are owned and operated by former GECW employees, and their personal understanding of the market strategy have allowed them to compete and win with the now large and slower moving GECW company.
The second pressure making it difficult for the company to continue to lead the marketplace is that their strategy is 20 years old, and the business world has significantly changed during the last half of the 90’s. During the 1980’s interest rates spiked, and interest on inventory costs became a significant item on resale business’ balance sheets. Because of double digit inflation rates in the U.S.A., interest rated soared in the states and around the world the concept of buying and warehousing the needed inventory became too expensive for businesses. It was impossible to buy and hold inventory when the company was paying 12-14% on the money used to purchase the goods.
This economic cycle lead to a global shift toward a just in time deliver system for inventory. This situation also opened the door for global giant like GE finance to forge creative solutions to financing needs, and offer the kind of programs in Ireland which built its business foundation. Now that global interest rates are again low, (in the States interest housing interest rates are the lower than they have been in 30 years), the availability of money is a factor which has allowed competitors to establish a beachhead in the Ireland market.
The strongest force driving the marketplace today is the speed at which businesses can operate, and the amount of control, convenience and selection which consumers expect. Access to global competitive information via the internet has changed the consumer’s expectations. When it was previously permitted to operate slowly, and have a limited selection of products at regionally determines prices, the consumer expects to be services immediately with the widest selection of products available, and they can compare prices geographically. Businesses who do not adjust their operations, and change the very nature of their corporate culture to attend this significant market shift are perceived by the consumer to be slow, inflexible and bureaucratic. Indeed, these labels are being attached to GECW’s reputation, which is further evidence that the company needs to make transformational changes in order to remain the market leader.
In order to more clearly evaluate GECW’s position, a SWOT analysis and application of Porters 5 Forces will be applied. From these tools, this paper will seek to determine a new vision, as well as an implementation strategy for the company to make steps to maintain their position as the dominant market leader in financial services.
Porters 5 Forces
The model of the Five Competitive Forces was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1980. Porter’s model is an expanded addition to the traditional SWOT analysis, and focuses a business attention toward a corporate strategy that should meet the opportunities and threats in the organizations external environment. Specifically, Porter believed that competitive strategy should base on and understanding of industry structures and the way they change. This expansion on the SWOT helps businesses break the static view of a single analysis, and take into consideration the dynamic forces in the marketplace. Porter has identified five competitive forces that shape every industry, and determined a thought process to measure both his existence and intensity of competition.
Through this process, GECW can take steps to modify these competitive forces in a way that improves their market position. Porter’s model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. Porters 5 competitive forces are typically described as follows:
Bargaining power of suppliers
Bargaining power of customers
Threat of new entrants
Threat of substitutes
Competitive rivalry within the industry
For the purposes of this evaluation, factor #1 will not be considered at This time, because the chief influences of GECW’s marketplace are the power of the customer to uses different vendors, the threat of new entrants and the competitive rivalry within the industry. The supplies are at the service of GECW, who is making it possible for their products to be displayed in the Irish market, and there is not feasible substitute for the automobile.
Bargaining Power of Customers
The bargaining power of customers determines how much customers can impose pressure on margins and volumes. Of the many factors which give the consumer power in a situation, their influence on the organization is likely to be high when:
The supplying industry comprises a large number of small operators
The product is undifferentiated and can be replaces by substitutes,
Switching to an alternative product is relatively simple and is not related to high costs. (Recklies, 2001)
In the case of GECW, the supplying industry is being crowded with other, smaller operators, and whether the customer purchases their loans from GECW of one of its competitors, the customer is purchasing the same product, so price and availability become more significant factors in the buying decision than brand loyalty.
Threat of New Entrants
In the current low interest environment, the competition in the marketplace is higher, and it is easier it is for other companies to enter this industry. As discussed, the new entrants are changing major determinants of the market environment (e.g. market shares, prices, customer loyalty. The threat to GECW of these new entries depends on the extent to which there are barriers to entry. Some of these barriers are typically:
Economies of scale (minimum size requirements for profitable operations),
High initial investments and fixed costs,
Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets,
Brand loyalty of customers
Protected intellectual property like patents, licenses etc.,
Scarcity of important resources, e.g. qualified expert staff (Recklies, 2001)
For GECW, none of these barriers exist. The Irish market is already small, and individual dealer’s stock relatively small numbers of vehicles, so the economy of scale, high investment costs and cost advantages for existing players do not exist, leaving the doors open for competitors to enter this already small marketplace and make the pieces of the pie even smaller.
Threat of Substitutes
While there is not threat of customers finding a substitute for the automobile, there exists the real threat of finding another vendor to supply the loan for the purchase, and this is GECW’s business. The smaller organizations can offer alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players.
Competitive Rivalry between Existing Players
This force describes the intensity of competition between existing players
Companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. The two factors exerting the largest pressure on GECW and enlivening their competitors are:
Players are building business on similar strategies
There is not much differentiation between players and their products; hence, there is much price competition.
Low market growth rates (growth of a particular company is possible only at the expense of a competitor).
Because of the limits Irish auto market, these players are going the bang their elbows as they play together in the same sand box. Being the biggest or the most reputable will not hold onto GECW’s market position when they and their competitors are offering essentially the same products to the same people at the similar terms.
In summary, when GECS came to market in Ireland, they did so with a “different and better” market strategy. They were willing and able to finance the dealers stock in return for a close to exclusive offering of the loan paperwork. Now that others have learned how to play the same game, “different and better” no longer applies to GECW, and they must differentiate themselves from the crowd again if they are to recapture a strong hold as market leader, and rebuild already eroding margins.
Because Porters 5 forces are an expansion of the threats to a business, and of the traditional SWOT analysis, this section will limit itself to GECW’s Strengths and Weaknesses and Opportunities. By evaluating these assets and liabilities, and combining it with the information learned from Porters forces, a new direction will be determined for GECW, along with specific steps and implementation strategies for the future.
A traditional look at the strengths of a company looks at what the company is currently doing well in the marketplace today. However, GECW has slowly slid into a position of looking at what the company did well in the marketplace. As the case with many larger successful companies, GECW built its reputation and success on a specific strategy which is no longer suiting it, and the list of strengths below no longer carries the influence in the marketplace which it used to.
GECW Brand now synonymous with Point of Sale Auto finance. They have scale and capacity within the central office, but the smaller branches are now able to duplicate these forces through smaller, faster response times and agility in the market.
Some of the professional accounts managers which have helped build GECW’s competitive advantage have left the giant, and are working for competing firms. The innovation and differentiation which GECS brought to the marketplace is now able to be duplicated by others, partially because of the human resources the company has lost to their competitors, and because the other companies are choosing to replicate the GECW model on a smaller scale.
Over all, the strengths which used to support the company no longer are affecting positive market placement. As with many larger companies, the slowness of the corporate structure to respond to these eroding strengths is putting the company into as much risk as it the presence of their competitors.
This list of weaknesses, when added to the absence of influential strengths, identifies a much more dangerous trend for GECW in the market place than eroding margins and new competition. GECW is positioned to be significantly affected by these weaknesses, and threats listed earlier. The company has taken on the perception of becoming slow, institutionalized, inflexible and bureaucratic. These perceptions are comparative perceptions; they exist only because the consumer has more attractive viable options in the market place. The organization would not be perceived as slow and inflexible if the consumer did not have an identifiable option that was swift to meet their needs. Because the Irish market is relatively small, GECW cannot rely on a constant influx of new buyers to mask this growing perception. The saying goes that a satisfied customer will tell 1 or 2 friends while an unhappy one will tell of their experiences and opinions to 10-12 people. In a small market, the negative effect of this kind of word of mouth advertising will quickly erode GECW’s position in the market.
Whether accurate in GECW’s case or not, consumers have the perception that larger companies have a more significant cost base, and therefore cannot offer the same economy on their products and services. This is a perception which the company will not be able to alter, because this is the global perception of small – v s – big business.
In light of the advancing threats to the organization, a host of weaknesses and strengths on which the company can no longer build, the opportunities for GECW are the most important area to accurately identify. In a relatively fixes market, wherein competitors do not have significant entrance barriers, and can minimize the economy of scale through digital means, which was once GECW’s largest asset, the company faces a situation much more severe than eroding margins. The company must differentiate itself again and use its size to create opportunity which the smaller companies cannot attain.
The initial review of opportunities includes identifying the growth of the Irish car market. On the small island, without significant industry or population influx the growth of the market will tend to continue on current rates. New product development is a strong possibility, but often smaller companies create and bring to market new products and opportunities much more effectively than large global leaders. GECW’s market position is already being challenged by its competitors, so its existing position is not an opportunity. The key question is ask in this area is what can GECW do to change its market position. The company can not rely on the opportunities of the past to strengthen its current standing. This will be a key are of casting a new vision, and will be further discussed in the conclusion.
One more evaluative tool will be applied to this situation before looking for a new direction. The McKinsey 7-S model proposed by Peters and Waterman is a means of looking beyond the exterior SWOT and market dynamics measures by Porters 5 forces and gazing into the heart of the company itself. This company is clearly positioned poorly. The eroding margins are not so much a function of doing business poorly as it is a matter of relying on yesterday’s success to carry the present day. The business world has changed, and since yesterday’s success have shaped the company culture and expectations, the company culture and expectations will need to be adjusted along with the company’s market position if the company is to be able to find a new direction, and reach the profitability goals set by new the new parent company.
Tom Peters and Robert Waterman, published their 7-S-Model in their article “Structure Is Not Organization” (1980) and in their books “The Art of Japanese Management” (1981) and “In Search of Excellence” (1982). The model starts on the premise that an organization is not just Structure, but consists of seven elements:
Those seven elements are distinguished in so called hard S’s and soft S’s. The hard elements (green circles) are feasible and easy to identify. They can typically be found in strategy statements, corporate plans, and organizational charts. The four soft S’s however, are less quantifiable. Capabilities, values and elements of corporate culture are slowly developed, often without the direct attention of those contributing to them. They are highly determined by the people at work in the organization. Therefore it is much more difficult to plan or to influence the characteristics of the soft elements. Although the soft factors are below the surface, they have a great impact of the hard structures, strategies and systems of the organization. The crucial element to understand about the 7-S model is that if one element changes then it affects all the others. For example, a change in HR-systems like internal career plans and management training will have an impact on organizational culture (management style) and thus will affect structures, processes, and finally characteristic competences of the organization.
Of these 7 structural elements, four are relatively static for GECW. The structure of the organization, its shared values, skills and staff are not going to be significantly effected by the changing market environment. Changing the structure of a global company is not a feasible option. The operation of Woodchester Credit Lyonnais Bank was already changed when it was acquired by GE capitol, and this current marketing strategy is a function of that change in the smaller company’s structure. The Shared values, and skill have been built into the organization as it became success, and the staff, while facing a slow and constant turn over, is still a relatively static and successful part of the company. The strategy is the focus of this paper, which leave company systems and business style as the elements which can create the most significant change in the overall organization’s performance.
One final evaluative tool could be used to further expand this situation, but with limited results. The PEST evaluation is valuable for international organizations which operate in environments which face a multitude of forces. The PEST evaluation digs deeply into Political, Economic, Social, and Technology issues facing a company in order to help the company gain an ‘outside-in’ perspective. However, the small island of Ireland is not significantly affected by change forces of this type. On the island the people are a smaller, relatively homogeneous group with little significant cultural shifts, social changes or swiftly moving economic pressures. So this tool would be of less value for a company operation on the European mainland, or in the Americas.
Establish New Vision
The recommenced changes points for GECW can be separated into three categories. The company is n a position which has little strength to support further growth, and due to this factor the largest area of new vision need to incorporate a cultural shift within the company itself. The staff, from the CPU to the most recently hired sales person need to understand the precarious position in which the company finds itself. Business as normal is no longer possible if the company wishes to maintain its market leadership. Changing the company employee’s perspective is the first step to invigorating them toward achieving new goals and enlisting their participation in casting a new vision.
Since the company is now a part of the GE Capitol group, there exists a wealth of synergistic expertise as the corporate structure interacts with the local people who have served the Irish market for many years. The largest threat to this change in perspective is for the corporate structure to assume that the local people will be able to come up with new ideas and directions for the GECW division while the local staffs who serve the customer every day to wait for new directions form the top. Such a communications misfire would only stall the progress the company needs to make.
In order to facilitate this culture change, which will be a blending of the global culture with the local Irish, the company should create training and update modules in a “townhouse meeting” format which equally blends local and corporate staff. The SWOT and Porters 5 forces should be reviewed so that from the top down every member understands the immediate need for change. This forum would be a wealth of ideas, and would build confidence in the organization’s future in every member, which is imperative for a successful change to occur.
The market in Ireland is fairly static with a flat growth curve. Opportunity exists to take the company to its British neighbor, and then to the European mainland, but this would introduce many variable not included in the scope of this paper. The company attained its market dominance with a strategy that was different and better than its competitors at the time. The company currently has an advantage of size that it is not using, and could utilize for further growth. The company has a limited number of automobile lines it supports and imports for the dealers. This list excludes the three major manufacturers of the U.S. And Japanese manufacturers as well. GECW’s clout could work for its advantage by approaching the American Big Three, and working toward opening Ireland as an additional market.
Because of GECW’s size, they can negotiate with the global auto makers with authority that could not be matched by their smaller competitors. If the dealers which are supported by GECW had exclusive availability the most popular vehicles in the American continent, their “different and better” status could be rebuilt. Key to these negations are trade barriers, marketing campaigns which would need to be supported by the auto makers, and negotiated exclusivity in order to make the investment and risk which GECW is accepting an opportunity for significant return.
Other than the possibility of new autos for the Irish people, the company does have the option of expanding its personal finance division into Britain, and the European mainland. The personal finance operation does not require the weight of inventory, or the logistics of transportation, warehousing and the entire variable which are required in a resale industry. Personal financing options are supported by chiefly marketing campaigns and the availability of the products. The swiftest return on investment and equity would be to enlarge the scope of this division, and work into the healthy, financially stable centers of the European continent.
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