The failure of the General Electric-Honeywell merger in 2001 has become one of the most legendary examples of how CEOs and companies can underestimate the impact of non-market players on businesses. The group of non-market players is broader than European, national and local politicians. It also consists of administration, industry associations, think tanks, trade unions, NGOs, traditional and digital media. Although these stakeholders are not part of Michael Porter’s famous five forces (competitors, suppliers, customers, new entrants or substitutes), they have an interest in or a concern about your company or organisation’s activities. Their actions can have a major influence on your business and your competitive position. Neglecting their impact might be a dramatic strategic mistake.
Indeed, on October 22, 2000, GE CEO Jack Welch never believed that his announcement that day would ultimately result in the biggest nightmare of his entire career. To the contrary, he proudly communicated the $45bn acquisition of Honeywell Inc. (abruptly ending Honeywell’s plans to merge with United Technologies). To Welch’s surprise Commissioner Mario Monti for competition indicated not much later that the agreement between two US companies raised strong concerns among suppliers and customers, i.e. airlines, on both sides of the Atlantic. And although GE entered negotiations with the European Commission on how to solve market dominance in the jet engine sector Commissioner Monti imposed very fierce conditions. As GE did not want to give in, the deal officially died on July 3, 2002 with a decision taken by the college of Commissioners.
So when GE announced its intention in 2014 to partner with Alstom it was apprehensive not to make the same mistakes. They listened carefully to stakeholders and the French government. At a certain moment GE Chairman and CEO Jeff Immelt said: “Our discussions with the French government over the past seven weeks have been productive. As a result, we have reached agreements with Alstom’s management that will create an alliance between our companies in both spirit and practice. The alliance will retain and strengthen France’s presence in the energy business and reinforce Alstom Transport. It creates jobs, establishes headquarters decision-making in France and ensures that the Alstom name will endure.” This statement demonstrates GE’s understanding of the importance of non-market interest. It also invested time and resources in conversations with the European Commission and ultimately the latter approved the acquisition of Alstom's energy businesses. Knowing that Siemens was also keen to reach a deal with Alstom, we have to emphasize how well GE did and learned from the past.
In a global economy, sustained competitive advantage arises from tacking social, political and environmental issues as part of a corporate strategy. Companies and organisations should be aware that non market players continuously look at their activities. Therefore it is crucial to map stakeholders based upon the value chain analysis and decision making process analysis.
Engaging with key stakeholders, understand their concerns, relay a set of compelling, credible and understandable messages and suggest alternatives where appropriate is therefore a prerequisite for success in business. The broader public has an increased power over corporate risk, reputation, and bottom-line success. So any good risk management needs to align its non-market strategy with its market strategy, not at the very end of a process but right from the start. This integrated approach will affect your company’s ability to reach its business objectives.
Michael Voordeckers, Strategy Director, H+K Strategies Brussels