9-702-428

REV: OCTOBER 27, 2005

________________________________________________________________________________________________________________

Professor Tarun Khanna and James Weber, Senior Researcher, Global Research Group, prepared this case. HBS cases are developed solely as the

basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective

management.

write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be

reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical,

photocopying, recording, or otherwise—without the permission of Harvard Business School.

TARUN KHANNA

General Electric Medical Systems, 2002

In early 2002, Joe Hogan, president and CEO of Milwaukee-based General Electric Medical

Systems Division (GEMS), the world’s leading manufacturer of diagnostic imaging equipment, faced

a difficult challenge. Hogan had been tapped to lead GEMS in November 2000 when his former boss,

Jeff Immelt, was named to replace the legendary Jack Welch in the top position at GEMS’ celebrated

corporate parent, General Electric (GE). By 2002, GE had the world’s largest market capitalization

($400 billion), built on its much-admired six-sigma and globalization initiatives, and its competitive

culture (Exhibits 1 and 2). GE was Fortune’s Global Most Admired Company in 1998, 1999, and 2000.

Meanwhile, GEMS, as the leader in global practices within GE, had built a formidable global

presence, especially on the backs of the Global Product Company (GPC) concept, implemented

during Immelt’s time. GPC’s philosophy was to concentrate manufacturing—and ultimately other

activities—wherever in the world it could be carried out to GE’s exacting standards most cost-

effectively. Yet opportunities in China were stressing the GPC model. Hogan wondered whether he

should modify GPC by adopting an “In China for China” policy so as to focus squarely on the

Chinese market.

In parallel, technological changes—represented by advances in genomics and healthcare

information technology—were making personalized medicine and personalized diagnostics possible.

These could radically alter GEMS’ business model, by demanding that the organization embrace a

move away from its engineering heritage toward biochemistry and learn to compete intensely with

entrepreneurial software companies. Demographic changes complicated matters further. Populations

were aging in advanced nations, and global information flows made healthcare disparities between

developed and developing nations more stark—and unacceptable. Ultimately, GE demanded that

GEMS grow annually at 20% and return on capital rise from its current 26% to 35%. The spotlight

was on GEMS as Immelt moved toward a technology-focused 21st century GE.

Healthcare Systems Around the World

There were wide variations in the world’s healthcare systems at the beginning of the 21st century,

even as medical expertise, drugs, and technologies spread across national boundaries at varying rates

(Exhibit 3). Healthcare spending as a percentage of GDP had increased worldwide over the previous

three decades. The worldwide aging of populations implied fewer working-age people to pay for

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