New Financial and Statistical Measures to Monitor Essay Example

up new opportunities for our company.

The international operating profit in 1995 was $3.0 billion, which is an increase from the $2.3 billion recorded in 1993. This expansion carries risks and reveals a new trend for our corporation. In my analysis, I will primarily focus on the international sector and examine employees, stockholders, goodwill, and potential investors.

MIEC (Manufacturing Industry Expenses Comparison)

Within our company's continuing operations, there are 12 key businesses with varying sizes of management units. Among these businesses, three specifically operate in the service field:

• (a) Capital Service,
• (b) NBC,
• (c) Information Service.

In addition to these services, there are nine different segments within the manufacturing industry that we will discuss further at a later point.

Despite not being our main focus, the success of the service industry can be measured by how well GE's manufacturing segment performs. Over the past few years, General Electric's manufacturing sector has undergone significant growth and consolidation, leading to a revenue of around $40,000 million and a profit of nearly $9,110 million for this year. We view these accomplishments in manufacturing as signs of success. Consequently, we wonder why we should stop investing in this "success" and instead explore a completely different field. In the next section, we will examine the initial approach adopted to tackle this question.

The Manufacturing Industry Expenses Comparison (MIEC) is a tool that allows for comparing the expenses of the service industry with those of the manufacturing industry. Through the MIEC, we can gain insight into how spending on services correlates to spending on manufacturing. While seemingly unremarkable, the MIEC carries significance and when analyzed alongside other factors, it offers valuable insights crucial for

making future company decisions.

By combining MIEC and return on assets, it can be determined that the service industry has a higher return on assets compared to the manufacturing industry. Therefore, increasing this ratio by allocating more funds to the service industry would be a wise decision. On the other hand, if the return on assets is lower for the service industry than the manufacturing sector, it would be advisable to invest more in the latter and decrease this ratio. The objective is to achieve a balance between these two major parts of our corporation.

Mr. Welch has expressed his desire for the service industry to contribute 80% instead of its current figure of 60% to our profits. To accomplish this goal, it is necessary to invest more in the service industry and increase the MIEC ratio.

Looking to the future, the question arises as to what extent we should increase the MIEC ratio. Based on what has been discussed thus far, the MIEC ratio should be adjusted until the return on assets from the service industry equals the return on assets from the manufacturing industry. Although achieving perfect equilibrium is unlikely, striving towards it can guide us in making optimal decisions. For instance, consider the scenario where the return on assets from the service industry is 15% and the return on assets from the manufacturing industry is 12%. This indicates that greater investments should be allocated to bolstering the service industry.

However, beyond a certain threshold, the elimination of "good ideas" would occur. The firm would then need to invest in less profitable areas, causing the return on assets from the service industry to decline. As a result,

it would gradually approach the return on assets of the saturated manufacturing industry. It is crucial that, at this point, we cease increasing MIEC and instead maintain stability, ceteris paribus. In order to expand the share of services, GE had to reshape its assets, transitioning from buildings, machinery, and equipment to highly skilled employees, software experts, service networks, and the like. This organizational transformation will incur considerable costs for our company, as reflected by the MIEC. It enables us to assess how much these expenses compare to those incurred by the well-established manufacturing industry. Furthermore, it aids us in determining if this ratio truly holds its expected value for our corporation to operate efficiently.

The EC metric reveals the profitability of individual employees, which can be utilized in various ways. One potential use is to assess the appropriateness of the average salary within the company. For instance, if we discover that the average salary in 199x was $60,000 and our other expenses amounted to $250,000 (when divided by each employee), our return on investment would be less than 9%. This falls short of our objective to achieve double-digit earnings, indicating the need for improvement. Should our other expenses appear reasonable, we can consider reducing salaries or potentially downsizing the workforce.

During the 1980s, General Electric had to downsize its payrolls for most departments due to high salaries compared to generated income. However, as the corporation grows stronger, there may be employees in newly acquired companies with salaries exceeding the value of their services to the company. To prevent this, we should individually evaluate and compare the Economic Contribution (EC) of each company. Additionally, comparing EC between service

and manufacturing industries is crucial. Given that manufacturing is an older industry, it has undergone numerous changes during challenging times for the company. Consequently, we can assume that employee numbers have been adjusted over the years to facilitate efficient functioning of the corporation.

Therefore, a good target for the recently acquired service firms would be to reach the EC of manufacturing firms within General Electric. This also applies to firms in the USA and international firms, many of which have been acquired in recent years. For instance, in 1995 it was anticipated that the 72,000 employees working overseas would generate approximately: 72000 x 30000 = $2,160 billion (as mentioned earlier, $30,000 was the value EC for 1995).