GE Capital Woodchester Business Transformation Strategy

Introduction: GE Capital Woodchester in the Irish Market

GE Capital Woodchester (GECW) is a leading provider of motor, equipment, and personal finance in Ireland. The company offers flexible packages designed to meet diverse financial needs and has earned a position of leadership in personal and capital acquisition financial services. GECW also provides specialized financing and services, focusing on niches including equipment and car leasing, hire purchase, and loans to businesses and individuals across Ireland. Headquartered in Dublin, GE Capital Woodchester serves its customers through regional sales centers and an 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, GE Capital is a global, diversified financial services company with 28 specialized businesses worldwide. GE Capital has 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 years of experience. GE Capital holds one of the strongest capital positions worldwide, backed by an AAA credit rating, all of which help provide powerful benefits to customers.

The company rose to its position through a unique market strategy. Because there are no automobile manufacturers 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 bears the expense of purchasing and shipping vehicles to the country and, in return, holds first rights to the commercial paper through which dealerships sell the vehicles to customers.

This strategy has been very successful. It has allowed GECW to act as a partner in creating businesses that could not have paid to import and sell vehicles with their own resources. GECW positioned itself as a benefactor, making the success of car dealers possible. This relationship helped the company build solid ties over the past two decades and is just as responsible for its success in Ireland as the straightforward business of lending money at interest.

However, two significant pressures are affecting GECW and eroding the company's profits. The first is outside competition entering the marketplace. While GECW is the market leader in point-of-sale auto finance, smaller competing firms have begun to offer the same financing programs. Some of these firms are owned and operated by former GECW employees whose personal understanding of the market strategy has allowed them to compete effectively against the now large and slower-moving GECW.

The second pressure is that the company's core strategy is 20 years old, and the business world has changed significantly during the latter half of the 1990s. During the 1980s, interest rates spiked, and the cost of carrying inventory became a significant item on resale businesses' balance sheets. Because of double-digit inflation rates in the United States, interest rates soared globally and the concept of buying and warehousing inventory became too expensive. It was practically impossible to buy and hold inventory when a company was paying 12–14% interest on the funds used to purchase goods.

This economic cycle led to a global shift toward just-in-time delivery systems for inventory. It also opened the door for global giants like GE Capital to forge creative financing solutions and offer programs in Ireland that built its business foundation. Now that global interest rates are again low, the ready availability of capital has allowed competitors to establish a foothold in the Irish market.

The strongest force driving the marketplace today is the speed at which businesses can operate and the degree of control, convenience, and selection that consumers expect. Access to global competitive information via the internet has fundamentally changed consumer expectations. Where businesses once operated slowly with limited product selections at regionally determined prices, consumers now expect immediate service, wide product selection, and the ability to compare prices across geographies. Businesses that do not adjust their operations and corporate culture to meet this significant market shift are perceived as slow, inflexible, and bureaucratic. These labels are increasingly 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.

Porter's Five Forces Analysis

In order to evaluate GECW's position more clearly, a SWOT analysis and an application of Porter's Five Forces will be applied. From these tools, this paper seeks to determine a new vision as well as an implementation strategy for the company to maintain its position as the dominant market leader in financial services.

The model of the Five Competitive Forces was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors (1980). Porter's model is an expanded addition to the traditional SWOT analysis and directs a business's attention toward a corporate strategy that meets the opportunities and threats in the organization's external environment. Specifically, Porter believed that competitive strategy should be based on an understanding of industry structures and the way they change. This expansion on the SWOT helps businesses move beyond a static view and take into consideration the dynamic forces at work in the marketplace. Porter identified five competitive forces that shape every industry and developed a framework to measure both the existence and intensity of competition.

Through this process, GECW can take steps to modify these competitive forces in ways that improve its market position. Porter's model supports analysis of the driving forces in an industry, and based on the information derived from a Five Forces analysis, management can decide how to influence or exploit particular characteristics of their industry. Porter's five competitive forces are typically described as follows:

For the purposes of this evaluation, the bargaining power of suppliers will not be considered in detail, because the chief influences on GECW's marketplace are the power of the customer to use different vendors, the threat of new entrants, and competitive rivalry within the industry. Suppliers are largely at the service of GECW, which makes it possible for their products to be displayed in the Irish market, and there is no feasible substitute for the automobile itself.

The bargaining power of customers determines how much pressure customers can impose on margins and volumes. Among the many factors that give consumers power, their influence is likely to be high when: the supplying industry comprises a large number of small operators; the product is undifferentiated and can be replaced by substitutes; and switching to an alternative product is relatively simple and does not involve high costs (Reklies, 2001).

In the case of GECW, the supplying industry is becoming crowded with smaller operators. Whether a customer purchases a loan from GECW or one of its competitors, they are purchasing essentially the same product, so price and availability become more significant factors in the buying decision than brand loyalty.

In the current low-interest-rate environment, competition in the marketplace is higher and it is easier for other companies to enter the industry. As discussed, new entrants are changing major determinants of the market environment — including market shares, prices, and customer loyalty. The threat posed to GECW by these new entrants depends on the extent to which barriers to entry exist. Such barriers typically include: 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; brand loyalty of customers; protected intellectual property such as patents and licenses; and scarcity of important resources such as qualified expert staff (Reklies, 2001).

For GECW, none of these barriers are particularly effective. The Irish market is already small, and individual dealers carry relatively small numbers of vehicles, so economies of scale, high investment costs, and cost advantages for existing players do not constitute meaningful obstacles. The doors remain open for competitors to enter this already small marketplace and claim an ever-smaller share of the pie.

While there is little threat of customers finding a substitute for the automobile itself, there is a very real threat of customers choosing another vendor to supply the loan for their purchase — and that is GECW's core business. Smaller organizations can offer alternative loan products with lower prices or better terms for the same purpose. They could potentially attract a significant proportion of market volume and thereby reduce the potential sales volume available to existing players.

This force describes the intensity of competition among existing companies in an industry. High competitive pressure results in downward pressure on prices, margins, and ultimately profitability for every firm in the industry. The two factors exerting the largest pressure on GECW and energizing its competitors are: first, that players are building businesses on similar strategies with little differentiation between their products, leading to intense price competition; and second, that low market growth rates mean that gains for any one company come only at the expense of a competitor.

Because of the limited size of the Irish auto market, these players are competing intensely in a confined space. Being the biggest or the most reputable will not secure GECW's market position when it and its competitors are offering essentially the same products to the same people on similar terms.

In summary, when GECW entered the Irish market, it did so with a "different and better" strategy. It was willing and able to finance dealers' stock in return for near-exclusive rights to the loan paperwork. Now that others have learned to play the same game, "different and better" no longer applies to GECW, and the company must differentiate itself again if it is to recapture a strong position as market leader and rebuild its eroding margins.

SWOT Analysis

Because Porter's Five Forces represent an expansion of the threats component of a traditional SWOT analysis, this section will focus on GECW's strengths, weaknesses, and opportunities. By evaluating these assets and liabilities in combination with the insights from Porter's framework, a new direction can be identified for GECW, along with specific steps and implementation strategies for the future.

A traditional look at a company's strengths examines what the company is currently doing well in the marketplace. However, GECW has gradually shifted toward reflecting on what it used to do well. As is common with many large, successful companies, GECW built its reputation and success on a specific strategy that is no longer serving it well, and the strengths listed below no longer carry the marketplace influence they once did.

The GECW brand is now synonymous with point-of-sale auto finance. The company has scale and capacity within its central office, but smaller branches are now able to replicate these advantages through faster response times and greater agility in the market. Additionally, some of the professional account managers who helped build GECW's competitive advantage have left and are now working for competing firms. The innovation and differentiation that GECW brought to the marketplace can now be duplicated by others, partly because of the human resources the company has lost to competitors, and partly because competing firms are successfully replicating the GECW model on a smaller scale.

Overall, the strengths that used to support the company are no longer driving positive market placement. As with many larger companies, the slowness of the corporate structure to respond to these eroding strengths is placing the company at as much risk as the presence of competitors themselves.

This list of weaknesses, combined with the diminished influence of former strengths, identifies a trend far more dangerous for GECW than eroding margins and new competition. GECW has taken on the perception of being slow, institutionalized, inflexible, and bureaucratic. These are comparative perceptions — they exist only because consumers now have more attractive and viable options in the marketplace. The organization would not be perceived as slow and inflexible if consumers did not have identifiable alternatives that meet their needs more swiftly. Because the Irish market is relatively small, GECW cannot rely on a constant influx of new buyers to mask this growing perception. As the saying goes, a satisfied customer will tell one or two friends, while an unhappy one will share their experience with ten to twelve people. In a small market, the negative effects of such word-of-mouth will quickly erode GECW's position.

Whether accurate or not in GECW's specific case, consumers generally perceive larger companies as having a higher cost base, and therefore as unable to offer the same value as smaller competitors. This is a perception the company will be unable to alter, as it reflects a broadly held global view of large versus small business.

In light of advancing competitive threats, a host of weaknesses, and strengths on which the company can no longer build, accurately identifying opportunities becomes the most critical part of this analysis. In a relatively fixed market where competitors face few significant entry barriers and can neutralize GECW's economies of scale through digital means, the company faces a situation more severe than eroding margins. It must differentiate itself once again and use its size to create opportunities that smaller competitors cannot attain.

An initial review of opportunities includes assessing the growth of the Irish car market. On a small island without significant industrial growth or population influx, market growth will likely continue at current rates. New product development is a possibility, but smaller companies typically bring new products to market more effectively than large global leaders. GECW's existing market position is under challenge, meaning it cannot be treated as an opportunity in itself. The key question is what GECW can do to change its market position. The company cannot rely on the opportunities of the past to strengthen its current standing. This will be a key area in casting a new vision and will be addressed further in the recommendations below.

One additional evaluative tool is worth considering before determining a new direction. The McKinsey 7-S model proposed by Peters and Waterman is a means of looking beyond the external SWOT and market dynamics measured by Porter's Five Forces, and examining the heart of the company itself. GECW is clearly poorly positioned. The eroding margins are not so much a function of poor operational management as they are a result of relying on yesterday's success to carry the company forward today. The business world has changed, and since past successes have shaped the company's culture and expectations, both culture and expectations must be adjusted alongside the company's market position if GECW is to find a new direction and meet the profitability goals set by its parent company.