The General Electric Company and Berkshire Hathaway have had similar diversification strategies. They have historically acquired a variety of somewhat unrelated businesses but have had markedly different financial results over the twenty years (1997-2017).
Over these 20 years, G.E.’s total revenues grew from $90.8 billion in 1997 to $122.1 billion in 2017 (34% over the 20 years); Berkshire Hathaway’s revenues grew from $10.4 billion in 1997 to $242 billion in 2017 (a growth of 222.7% over 20 years).
Over the same twenty-year period, G.E.’s net profits grew from $8.2 billion in 1997 to $8.0 billion in 2017 (before massive write-offs due to restructuring and other related costs, which resulted in a net loss of $6.2 billion). Simultaneously, Berkshire Hathaway’s profits grew from $1.9 billion in 1997 to $44.9 billion in 2017 or by 226%.
G.E.’s stock price at the end of 1997 was $24.76 and, at the end of 2017, was $17.45. A loss of 30% over the twenty years.Berkshire Hathaway’s stock price (class B shares) at the end of 1997 was $22.74 and $198.22 at the end of 2017. A gain of 89% over the 20 years.
Thomas Edison founded G.E. in 1892, and Berkshire Hathaway was founded and is still run by Warren Buffett in 1965, but Berkshire Hathaway began as a cotton mill in 1888.
G.E. and Berkshire Hathaway have (or have had) both consumer goods and industrial businesses.
G.E. has 313,000 employees worldwide, and Berkshire Hathaway has 360.000.
Both companies have had an unrelated diversification strategy for some time. Both have made numerous acquisitions in unrelated businesses and related businesses and have interests in the financial services industry (banking, insurances, and financing). Both companies also have investments and interests in international operations. G.E. has recently sold most of its investments in the financial services industry.
The fundamental question to be addressed in this analysis paper is why Berkshire Hathaway had performed so much better than General Electric during the past twenty years when both companies had had similar strategies.
To gain insight into this question, examine the following issues:
- LEADERSHIP: What role did leadership play in the long-term performance of the two companies? What has been the G.E. leadership style? What has been Berkshire Hathaway’s leadership style? How would you describe the differences in the leadership style of the two companies during the twenty years? Do these differences affect long-term performance? Explain how and why. For G.E., use the period when Jeff Immelt was CEO of G.E.
- CULTURE: Are there differences in the culture of each of the organizations that might explain performance differences? What is G.E.’s culture? What is the Berkshire Hathaway culture? What are each company’s values? Do these differences explain performance differences? Explain how and why.
- COMPENSATION: What are the differences in compensation and compensation plans for the CEOs and other two companies’ executives, and how might these plans contribute to differences in performance? Explain how and why.
- APPROACH TO ACQUISITIONS: Both G.E. and Berkshire Hathaway have made many acquisitions over the twenty years. Is there a difference in how each company approaches acquiring other companies? Do they have the same criteria? How may the differences affect long-term performance? Explain how and why.